a. ABC Co. issues $100,000, 4%, 10 year bonds when the prevailing market rate of interest...

a. ABC Co. issues $100,000, 4%, 10 year bonds when the prevailing market rate of interest is 5%. The bonds pay interest annually. Compute the issue price of the bonds.

b. ABC Co. issues $100,000, 4%, 10 year bonds when the prevailing market rate of interest is 5%. The bonds pay interest semi-annually. Compute the issue price of the bonds.

c. ABC Co. issues $500,000, 10%, 10 year bonds when the prevailing market rate of interest is 9%. The bonds pay interest annually. Compute the issue price of the bonds.

d. ABC Co. issues $500,000, 10%, 10 year bonds when the prevailing market rate of interest is 9%. The bonds pay interest semi-annually. Compute the issue price of the bonds.

Solutions

Expert Solution

Price of the bond = c × F × (1 ? (1 + r)^-t)/r+F(1 + r)^t
C=Interest Rate	F= Face Value	r=Market Interest Rate
Price of Bond= Present value of Interest payments+Present value of the bond
discount factor taken upto 5 decimal taken

ans 1
Price of Bond	4000*(1-(1.05)^-10)/.05)+100000/(1.05)^10
	(4000(1-.61391)/.05)+100000.61391		92278


Interest paid (100000*4%)	$4,000
No. of period	10

Price of the bonds	$92,278

ans 2
Price of Bond	2000*(1-(1.025)^-20)/.05)+100000/(1.025)^20
	(2000(1-.61027)/.025)+100000.61027		92205


Interest paid (1000004%6/12)	$2,000
No. of period (10*2)	20

Price of the bonds	$92,205
ans 3
Price of Bond	10000*(1-(1.09)^-10)/.09)+100000/(1.09)^10
	(10000(1-.42241)/.09)+100000.42241		106418


Interest paid (100000*10%)	$10,000
No. of period	10

Price of the bonds	$106,418

ans 4
Price of Bond	5000*(1-(1.045)^-20)/.045)+100000/(1.045)^10
	(5000(1-.41464)/.045)+100000.41464		106504


Interest paid (10000010%6/12)	$5,000
No. of period (10*2)	20

Price of the bonds	$106,504

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

ABC Co. issues $500,000, 10%, 10 year bonds when the prevailing market rate of interest is...

ABC Co. issues $500,000, 10%, 10 year bonds when the prevailing market rate of interest is 9%. The bonds pay interest annually. Compute the issue price of the bonds. I tried 106,418 and 532,205 are wrong answers. ABC Co. issues $500,000, 10%, 10 year bonds when the prevailing market rate of interest is 11%. The bonds pay interest annually. Compute the issue price of the bonds. 470,450 and 470,124 are wrong answers.

ABC Co. issues a 10 Year, 8% Bonds, the face value is 100,000 and market rate...

ABC Co. issues a 10 Year, 8% Bonds, the face value is 100,000 and market rate is 10%, it is compounded semi-annually. 1. Will the bond be issued at a premium or discount? Why? 2. Calculate the Bond Price upon issue. 3. Prepare the Amortization Table using the Effective method

On December 31,2018,when the market interest rate is 16%, Benson Realty issues $550,000 of 14.25%,10-year bonds...

On December 31,2018,when the market interest rate is 16%, Benson Realty issues $550,000 of 14.25%,10-year bonds payable. The bonds pay interest semiannually. The present value of the bonds at issuance is $502,993. Requirements 1. Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) 2. Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments.

A company issues $1,000,000 of 20-year 10% bonds that pay interest semiannually. The market rate for...

A company issues $1,000,000 of 20-year 10% bonds that pay interest semiannually. The market rate for bonds of similar risk is 9%. Prepare the journal entries to record the issuance of the bond and the first two interest payments. : Please walk through interest journal entries

Shawn issues $100,000 10 % par value bonds for $96,156. The bonds have a 4 year...

Shawn issues $100,000 10 % par value bonds for $96,156. The bonds have a 4 year life with semiannual interest payments. Record the entry on the issue date, the first interest payment, and the entry to retire the bonds. What will be the total interest payments for this bond?

On Jan1, year 5, ABC Co. Issued $100,000, of 5 year, 12%bonds at a market (effective)...

On Jan1, year 5, ABC Co. Issued $100,000, of 5 year, 12%bonds at a market (effective) interest rate of 13%, receiving cash of $96,406. Interest on the bonds is payable semiannually on June 30 and Dec 31. Compute the following: i. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. ii. Journalize the entries to record the following: a. The first semiannual interest payment on June 30, Yr. 5, and the amortization of...

On October 1, ABC Company issues $1,400,000 face value 5%, 10-year bonds when the market for...

On October 1, ABC Company issues $1,400,000 face value 5%, 10-year bonds when the market for ABC bonds required a 6% yield. Interest is paid annually on October 1. ABC’s fiscal year ends December 31. Required: Determine the issue price of the bonds and prepare the journal entry to record the issuance. Prepare all entries related to these bonds at December 31, 2019, October 1 and December 31, 2020. Use the effective interest method to amortize premium or discount, if...

On December 31, 2018, when the market interest rate is 8%, Arnold Corporation issues $200,000 of 6%, 10-year bonds payable

On December 31, 2018, when the market interest rate is 8%, Arnold Corporation issues $200,000 of 6%, 10-year bonds payable. The bonds pay interest semiannually. Determine the present value of the bonds at issuance.

Stealth Fitness Center issues 9%, 9-year bonds with a face amount of $100,000. The market interest...

Stealth Fitness Center issues 9%, 9-year bonds with a face amount of $100,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually. At what price will the bonds be issued? Use Table 2 and Table 4. (Round "PV Factor" to 5 decimal places. Round other intermediate calculations and final answer to the nearest dollar amount.) Tryna find the Issue price__________

XYZ Co. issues $200,000 of 6%, 10-year bonds on January 2, 2012. The bonds pay interest...

XYZ Co. issues $200,000 of 6%, 10-year bonds on January 2, 2012. The bonds pay interest annually on December 31. The market rate of interest on bonds of a similar default risk is 4% on the date the bonds are issued. Requirements: 1.) Calculate the issuance (selling price) of the bonds: a.) Using ‘formulas’ b.) Using “PV” function in Excel c.) Using financial calculator if you have one 2.) Prepare an amortization table for the 10 interest payments–...

Subjects