Question
In: Finance
Rottweiler Corporation issued 100, $1,000 par value bonds on February 24, 2019. The original bonds' maturity...
Rottweiler Corporation issued 100, $1,000 par value bonds on February 24, 2019. The original bonds' maturity was 20 years, and they have a six percent coupon. Rottweiler used the money to purchase 150 Really Adorable Puppies. The firm hopes to double production of Really Adorable Puppies in the next five to ten years. The company makes all payments on a semiannual basis.
1. What is the value of the bond on February 24, 2020, if the interest rate on comparable debt is 6 percent? What is the current yield? What is the yield to maturity?
2. What is the value of the bond on February 24, 2020, if the interest on comparable debt is 10 percent? What is the current yield? What is the yield to maturity?
3. What is the value of the bond on February 24, 2020, if the interest on comparable debt is 4 percent? What is the current yield? What is the yield to maturity?
4. Draw the time path of value graph (be sure to label all points of interest) of a 6 percent coupon, $1,000 par value bond when interest rates are 4 percent, 6 percent, and 10 percent.
Solutions
Expert Solution
| 1- | |||
| Price of Bond | (coupon payment*PVAF At 3% for 38 months)+(face value*PVF at 3% at 38 months | (30*22.49246)+(1000*.32523) | 1000.00 |
| PVAF At 3% for 38 period | 1-(1+r)^-n /r =1-(1.03)^-38 /3% | 22.49246 | |
| PVF at 3% at 38 period | 1/(1+r)^n =1/(1.03)^38 | 0.32523 | |
| Current yield =Interest payment/market price | 60/1000 | 6% | |
| YTM | 6% | ||
| 2- | |||
| Price of Bond | (coupon payment*PVAF At 5% for 38 months)+(face value*PVF at 5% at 38 period | (30*16.86789)+(1000*0.15661) | 662.65 |
| PVAF At 5% for 38 period | 1-(1+r)^-n /r =1-(1.05)^-38 /5% | 16.86789 | |
| PVF at 5% at 38 period | 1/(1+r)^n =1/(1.05)^38 | 0.15661 | |
| Current yield =Interest payment/market price | 60/662.65 | 9.05% | |
| YTM | 10% | ||
| Price of Bond | (coupon payment*PVAF At 2% for 38 months)+(face value*PVF at 2% at 38 period | (30*16.86789)+(1000*0.47119) | 977.23 |
| PVAF At 2% for 38 period | 1-(1+r)^-n /r =1-(1.02)^-38 /5% | 16.86789 | |
| PVF at 2% at 38 period | 1/(1+r)^n =1/(1.02)^38 | 0.47119 | |
| Current yield =Interest payment/market price | 60/977.23 | 6.14% | |
| YTM | 4% | ||
| YTM | value of bond | ||
| 4% | 977.23 | ||
| 6% | 1000.00 | ||
| 10% | 662.65 |
jeff jeffy answered 1 year agoRelated Solutions
Rottweiler Corporation issued 100, $1,000 par value bonds on February 24, 2019. The original bonds' maturity...
Rottweiler Corporation issued 100, $1,000 par value bonds on
February 24, 2019. The original bonds' maturity was 20 years, and
they have a six percent coupon. Rottweiler used the money to
purchase 150 Really Adorable Puppies. The firm hopes to double
production of Really Adorable Puppies in the next five to ten
years. The company makes all payments on a semiannual basis.
1.
What is the value of the bond on February 24, 2020, if the
interest rate on comparable...
On June 1, Summit Corporation issued 1,000 shares of $100 par value preferred stock at par...
On June 1, Summit Corporation issued 1,000
shares of $100 par value preferred stock at par value. On June 10,
the corporation issued 3,000 shares of $10 par value common stock
for $18 per share. On June 15, Summit issued 15,000 shares of
common stock in exchange for land with a fair market value of
$60,000 and a building with a fair market value of $180,000.
Prepare journal entries for the above
transactions.
In 2019, Pharoah Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares...
In 2019, Pharoah Enterprises issued, at par, 60 $1,000, 8%
bonds, each convertible into 100 shares of common stock. Pharoah
had revenues of $18,800 and expenses other than interest and taxes
of $8,000 for 2020. (Assume that the tax rate is 20%.) Throughout
2020, 1,800 shares of common stock were outstanding; none of the
bonds was converted or redeemed.
(a) Compute diluted earnings per share for 2020.
(Round answer to 2 decimal places, e.g.
$2.55.)
Earnings per share
$
(b)...
In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares...
In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8%
bonds, each convertible into 100 shares of common stock. Marigold
had revenues of $16,000 and expenses other than interest and taxes
of $6,700 for 2020. (Assume that the tax rate is 20%.) Throughout
2020, 2,400 shares of common stock were outstanding; none of the
bonds was converted or redeemed.
(a) Compute diluted earnings per share for 2020.
(Round answer to 2 decimal places, e.g.
$2.55.)
Earnings per share
$
(b)...
In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares...
In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8%
bonds, each convertible into 100 shares of common stock. Marigold
had revenues of $16,000 and expenses other than interest and taxes
of $6,700 for 2020. (Assume that the tax rate is 20%.) Throughout
2020, 2,400 shares of common stock were outstanding; none of the
bonds was converted or redeemed.
(a) Compute diluted earnings per share for 2020.
(Round answer to 2 decimal places, e.g.
$2.55.)
Earnings per share
$
(b)...
In 2019, Windsor Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares...
In 2019, Windsor Enterprises issued, at par, 60 $1,000, 8% bonds,
each convertible into 100 shares of common stock. Windsor had
revenues of $17,800 and expenses other than interest and taxes of
$10,000 for 2020. (Assume that the tax rate is 20%.) Throughout
2020, 1,900 shares of common stock were outstanding; none of the
bonds was converted or redeemed.
(a) Compute diluted earnings per share for 2020.
(Round answer to 2 decimal places, e.g.
$2.55.)
Earnings per share
$
(b)...
Q1) Two bonds with $1,000 par value were issued 2 years ago, with maturity 4 and...
Q1) Two bonds with $1,000 par value were issued 2 years ago,
with maturity 4 and 7 years. Their coupon rate was 9%. Today,
interest rates are unstable. Calculate the current prices for both
bonds in the following scenarios:
a. Similar risk bonds carry a 3 % interest rate
b. Similar risk bonds carry an 8 % interest rate
c. Similar risk bonds carry a 13 % interest rate
Explain your answer.
Note: this is not a multiple choice question
Watch-over-ya Securities has issued $1,000 par value bonds with 21 years maturity. The bonds pay 7.75%...
Watch-over-ya Securities has issued $1,000 par value bonds with
21 years maturity. The bonds pay 7.75% interest on an annual basis.
The current market price of the bonds is $1,350. What is the
yield-to-maturity of these bonds?
7.21%
2.52%
8.26%
5.02%
You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity)...
You are examining three bonds with a par value of $1,000 (you
receive $1,000 at maturity) and are concerned with what would
happen to their market value if interest rates (or the market
discount rate) changed. The three bonds are
Bond A—a bond with 6 years left to maturity that has an annual
coupon interest rate of 9 percent, but the interest is paid
semiannually.
Bond B—a bond with 9 years left to maturity that has an annual
coupon interest...
Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of...
Kenny Enterprises has just issued a bond with a par value of
$1,000, a maturity of twenty years, and a coupon rate of 12.3% with
semiannual payments. What is the cost of debt for Kenny Enterprises
if the bond sells at the following prices? What do you notice about
the price and the cost of debt?
a.$951.17
b.$1000.00
c.$1067.87
d.$1156.76
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
- There are a large number of tasks involved in information technology and programming, and many of...
ADVERTISEMENT