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In: Accounting

You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24....

You have been given the opportunity to purchase a $100 Transocean, Inc. corporate bond for $96.24. The bond was issued on 10/1/2001 and matures on 10/1/2031. It has a coupon rate of 7.5% per year and coupons are paid twice a year. If your MARR for bonds of this grade (Moody’s rating = Caa1) is 8.8% per year (nominal) should you purchase the bond today at this price?. You must draw a correct cash flow diagram to get full credit for this problem.

Solutions

Expert Solution

Interest @3.75% for 6 Month 1.044
Half Year Cash Flow PVF @ 4.4% (For 6Month) Present Value
0 -96.24 1 -96.24
1 3.75 0.957854406 3.591954
2 3.75 0.917485063 3.440569
3 3.75 0.87881711 3.295564
4 3.75 0.841778841 3.156671
5 3.75 0.806301572 3.023631
6 3.75 0.772319514 2.896198
7 3.75 0.739769649 2.774136
8 3.75 0.708591618 2.657219
9 3.75 0.678727603 2.545229
10 3.75 0.650122225 2.437958
11 3.75 0.622722438 2.335209
12 3.75 0.596477431 2.23679
13 3.75 0.571338536 2.14252
14 3.75 0.547259134 2.052222
15 3.75 0.524194573 1.96573
16 3.75 0.502102081 1.882883
17 3.75 0.480940691 1.803528
18 3.75 0.46067116 1.727517
19 3.75 0.4412559 1.65471
20 3.75 0.422658908 1.584971
21 3.75 0.404845697 1.518171
22 3.75 0.387783235 1.454187
23 3.75 0.37143988 1.3929
24 3.75 0.355785326 1.334195
25 3.75 0.340790542 1.277965
26 3.75 0.326427722 1.224104
27 3.75 0.312670232 1.172513
28 3.75 0.299492559 1.123097
29 3.75 0.286870268 1.075764
30 3.75 0.27477995 1.030425
31 3.75 0.263199186 0.986997
32 3.75 0.2521065 0.945399
33 3.75 0.241481322 0.905555
34 3.75 0.231303948 0.86739
35 3.75 0.221555506 0.830833
36 3.75 0.212217917 0.795817
37 3.75 0.203273867 0.762277
38 3.75 0.194706769 0.73015
39 3.75 0.186500737 0.699378
40 3.75 0.178640553 0.669902
41 3.75 0.17111164 0.641669
42 3.75 0.163900039 0.614625
43 3.75 0.156992374 0.588721
44 3.75 0.150375837 0.563909
45 3.75 0.144038158 0.540143
46 3.75 0.137967585 0.517378
47 3.75 0.132152859 0.495573
48 3.75 0.126583198 0.474687
49 3.75 0.121248274 0.454681
50 3.75 0.116138194 0.435518
51 3.75 0.11124348 0.417163
52 3.75 0.106555058 0.399581
53 3.75 0.102064232 0.382741
54 3.75 0.097762674 0.36661
55 3.75 0.093642408 0.351159
56 3.75 0.089695793 0.336359
57 3.75 0.085915511 0.322183
58 3.75 0.08229455 0.308605
59 3.75 0.078826198 0.295598
60 103.75 0.075504021 7.833542
228.76 Net Present Value -9.89733

Present value of Investment negative i.e $ -9.89 , therefore Bonds investment is not vible option.

ekkarill92 answered 1 year ago
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