Question
In: Accounting
A bond issue with a face amount of $500,000 bears interest at the rate of 7%....
A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is:
A. More than $500,000
B. Equal to $500,000
C. Less than $500,000
D. The answer cannot be determined from the information provided
Solutions
Expert Solution
The right answer choice is (A). More than $500,000”
· If the annual coupon interest rate of a bond is higher than current market interest rate, then the bond will be selling at a PREMIUM.
· When pricing bonds, there is an inverse relationship between the Market price and market interest rate or Yield to Maturity of the Bond
· The Market Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value
· If the Market Interest Rate Increases, then the discounting rate will be higher & the discounting factor will be lower and it will result’s in the Market Price of the Bond to be lower.
· If the Market Interest Rate Decreases, then the discounting rate will be lower & the discounting factor will be higher and it will result’s in the Market Price of the Bond to be higher.
Here, the annual coupon interest rate of a bond (7.00%) is higher than current market interest rate (6.00%), therefore, the Bond is selling at More than $500,000.
ekkarill92 answered 1 year agoRelated Solutions
A bond issue with a face amount of $500,000 bears interest at the rate of 7%....
A bond issue with a face amount of $500,000 bears interest at
the rate of 7%. The current market rate of interest is 8%. These
bonds will sell at a price that is: Equal to $500,000. Less than
$500,000. More than $500,000. The answer cannot be determined from
the information provided.
Seaside issues a bond that has a stated interest rate of 7%, face amount of $40,000,...
Seaside issues a bond that has a stated interest rate of 7%,
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are made semi-annually. The market rate for this type of bond is
10%. What is the issue price of the bond? (FV of $1, PV of $1, FVA
of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate
factor(s) from the tables provided.)
Multiple Choice
$62,274.
$34,683.
$65,914.
$40,000.
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A COMPANY ISSUE A BOND WITH THE FOLLOWING DETAILS FACE A BOND
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OF BOND) 0.58543 INDEX NO. ( PV OF ANNUITY) 7.53763 CALCULATE: A
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Consider a bond issue as follows: Face $100,000 Stated rate of interest 14% Market rate of...
Consider a bond issue as follows:
Face $100,000
Stated rate of interest 14%
Market rate of interest 8%
Maturity in five years
Semi-annual interest payments on June 30 and December 31
Date of issue on January 1, 2018
1. Determine the amount at which the bond was issued/sold
for.
2. Prepare the journal entry for the issuance.
3. Prepare the journal entry for the first interest payment.
4. Prepare the journal entry for the second interest
payment.
4. Prepare the...
Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.78% Coupon Rate...
Bond Features
Maturity (years) =
7
Face Value =
$1,000
Starting Interest Rate
4.78%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.78% to 5.02% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 5 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)
1. A company issues a bond with a face value of $500,000, coupon rate of 4.5%...
1. A company issues a bond with a face value of $500,000, coupon
rate of 4.5% and term of five years. Make the entries to record the
issue of the bond, payment of the first interest payment due and
payoff of the bond at maturity under each of the following
conditions:
a. Referring to the long term bond provided in the quiz
preparation document: enter the amount that will be received by the
company if the market interest rate on...
A. Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.28% Coupon...
A.
Bond Features
Maturity (years) =
7
Face Value =
$1,000
Starting Interest Rate
4.28%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.28% to 6.45% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 2 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)
B.
Assume you buy...
There is a 3-year bond available with a face of PLN 500,000, interest 6% pa, coupons...
There is a 3-year bond available with a face of PLN 500,000,
interest 6% pa, coupons paid semi-annually. It is expected that the
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increase to 12% pa and stay fixed during maturity period? Please
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There is a 3-year bond available with a face of PLN 500,000,
interest 6% pa, coupons paid semi-annually. It is expected that the
YTM will be fixed during maturity period at 8% pa. Estimate how
would the PVB at issue date change if YTM were to immediately
increase to 12% pa and stay fixed during maturity period? Please
use the best possible estimation (approximation).
The face value of a bond is $ 69000, its stated rate is 7%, and the...
The face value of a bond is $ 69000, its stated rate is 7%,
and the term of the bond is five years. The bond pays interest
semiannually. At the time of issue, the market rate is 8%.
Determine the present value of the bonds at issuance.
Present value of $1:
4%
5%
6%
7%
8%
5
0.822
0.784
0.747
0.713
0.681
6
0.790
0.746
0.705
0.666
0.630
7
0.760
0.711
0.665
0.623
0.583
8
0.731
0.677
0.627
0.582
0.540...
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