Question

In: Accounting

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar...

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar risk and maturity is 8%. Interest will be paid by Mufala semiannually. What is the issue price of the bonds? (Refer to the appropriate table in the Present and Future Value Tables section of your tex

Issue price of the bonds__________ ?

Expert Solution

Issue Price of the Bond

The Issue Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value

Face Value of the bond = $10,000,000

Semi-annual Coupon Amount = $300,000 [$10,000,000 x 6% x ½]

Semi-annual Yield to Maturity = 4.00% [8.00% x ½]

Maturity Period = 20 Years [10 Years x 2]

Therefore, the Issue Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $300,000[PVIFA 4.00%, 20 Years] + $10,000,000[PVIF 4.00%, 20 Years]

= [$300,000 x 13.59033] + [$10,000,000 x 0.45639]

= $4,077,099 + $4,563,900

= $8,640,999

“Therefore, the Issue Price of the Bond will be $8,640,999”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)ⁿ} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.

-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)ⁿ], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.

ekkarill92 answered 2 years ago

The Aleander Company plans to issue $10,000,000 of 10-year bonds at par next June, with semiannual...

The Aleander Company plans to issue $10,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 10 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. See the settlement data below for t-bond futures. (Note: One standard futures contract is $100,000 Delivery Month Open High Low Settle Change Open Interest...

Qantas is planning to issue 15-year bonds. The going market rate for such bonds is 8.2%....

Qantas is planning to issue 15-year bonds. The going market rate for such bonds is 8.2%. Assume that coupon payments will be semiannual. The company is trying to decide between issuing an 7.5% coupon bond or a zero coupon bond. The company needs to raise $1 million. a. What will be the price of the 7.5% coupon bonds? b. How many coupon bonds would have to be issued? c. What will be the price of the zero coupon bonds? d....

A corporation decides to issue 15-year bonds in the amount of $10,000,000. Interest payments will be...

A corporation decides to issue 15-year bonds in the amount of $10,000,000. Interest payments will be made at the rate of 10% compounded semi-annually. The bonds were priced to yield 8% compounded semi-annually to maturity. What is the price of the bonds? a. $8,462,755 b. $10,000,000 c. $3,083.187 d. $11,729,203

KIC, Inc., plans to issue $4 million of bonds with a coupon rate of 6 percent...

KIC, Inc., plans to issue $4 million of bonds with a coupon rate of 6 percent and 20 years to maturity. The current market interest rates on these bonds are 11 percent. In one year, the interest rate on the bonds will be either 10 percent or 4 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today? Assume a par value of $1,000 and semiannual payments....

Cool Candy Company issued 10 year $10,000,000 face value, 6% convertible bonds at par on January...

Cool Candy Company issued 10 year $10,000,000 face value, 6% convertible bonds at par on January 1, 2018. Each bond has a par value of $1,000 with interest payable on December 31 of each year. The conversion ratio is 5:1 (5 shares of stock for each bond). No bonds have been converted into common stock. Cool’s tax rate is 20%. Net income (after tax) for 2018 was $45,000,000 and the Company has 10,000,000 common shares issued and outstanding during the...

Johnston, Inc. sold 10-year bonds with a 6% coupon rate to yield 5%. The face value...

Johnston, Inc. sold 10-year bonds with a 6% coupon rate to yield 5%. The face value is $400,000. The bonds pay interest semi-annually. What is the amount of cash proceeds? The cash proceeds are? Please show work on excel and show calculated formulas and use answer by using PV and/or FV table factors

Oak Branch Inc. issued $860,000 of 8%, 10-year bonds when the market rate was 7%. They...

Oak Branch Inc. issued $860,000 of 8%, 10-year bonds when the market rate was 7%. They received $921,127. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds. Round intermediate and final answers to whole dollar amount. Cash Interest Payment Interest on Carrying Value Amortization of Premium Carrying Value Jan. 1, Year 1 $ June 30, Year 1 $ $ $ Dec. 31, Year 1 June 30, Year 2 ...

On January 1, the Company issued $400,000 of 6%, 6-year bonds when the market rate of...

On January 1, the Company issued $400,000 of 6%, 6-year bonds when the market rate of interest was 8%. The bonds pay interest semiannually on June 30 and December 31. How much are the proceeds that Ryan will receive from the bond issue date?

Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% interest rate, with...

Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much can Wildhorse expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,575.)

Moon Software Inc. is planning to issue a 10-year, noncallable bonds to raise a total of...

Moon Software Inc. is planning to issue a 10-year, noncallable bonds to raise a total of $3 million. The bond is with a 10-year maturity and a $1000 par value. The bond has a coupon rate of 6.25% and is compounded annually. In addition, following information is collected: 1) A share of 5 year 4.25% coupon Treasury note is sold at $1028.58. 2) A share of 10 year 4.25% coupon Treasury note is sold at $1022.1. 3) Moon software Inc....