Question

In: Accounting

Please provide examples of the following: 6. Calculate gain or loss when selling an issued bond...

Please provide examples of the following:

6. Calculate gain or loss when selling an issued bond before its due date

7. Calculate the selling price of a bond:

a. The present value of interest payments plus

b. The present value of face value of the bond at maturity

Solutions

Expert Solution

Question - 6

A bond that pays 8% annual Interest was purchased 4 years ago for $ 1020. There are further 6 years to maturity. However due to general decline in the market interest, these bonds are trading at $ 1200. what is the gain or loss on sale of these bonds at very beginning of 5th year.

Gain on sale of bond = sale value - carring value of the bond = 1200 - 1012 = 188

Note (1) carrying value ( using straight line amortization of bond premium) = 1020 - 20 * 4years / 10 years = 1012

Note (2) annual interest earned @ 8% is a revenue gain, hence not to be considered as gain on account of sale.

Question - 7

Suppose 8% annual coupon bond of face value 1000 are to be issued by a company. Considering the risk class to which this company belongs, investors preffer 10% Yield to maturity. Terms of maturity is 5 Years. Determine the selling price of these bonds

a. Present value of Interest payments = 80 x [ 1 - (1.10)-5 ] / 0.10 = 303.26

b. Present value of face value of the bond at maturity = 1000 / (1.10)5 = 620.92

Selling price = 303.26 + 620.92 = 924.18 .............. will the selling price of bonds to be issued.


Related Solutions

For each of the following independent transactions, calculate the recognized gain or loss to the seller...
For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. If an amount is zero, enter "0." Seller's Recognized Gain/Loss Buyer's Adjusted Basis a. Bonnie sells Parchment, Inc. stock (adjusted basis $17,000) to Phillip, her brother, for its fair market value of $12,000. $ $ b. Amos sells land (adjusted basis $85,000) to his nephew, Boyd, for its fair market value of $70,000. $ $ c. Susan...
Please provide examples of the following: 5. Calculate effective rate of interest and calculate stated rate...
Please provide examples of the following: 5. Calculate effective rate of interest and calculate stated rate in reverse. If I give you amount of interest and face value of bond, what is interest rate? a. Stated rate: interest in $ divided by face value of a bond in $ b. Effective rate: divide effective interest in $ the outstanding (book value) balance of bond
e0. Which of the following is NOT taken into account when determining if gain or loss...
e0. Which of the following is NOT taken into account when determining if gain or loss should be recognized by the shareholder on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation. a) Ownership of a least 80% of all stock b) Receiving money in addition to stock c) Fair market value of property transferred to corporation by shareholder d) Mortgage on shareholder’s property assumed by corporation. e) None of the...
how do you calculate welfare loss/gain?
how do you calculate welfare loss/gain?
How does a casino gain a mathematical advantage in Roulette? Please provide specific examples for your...
How does a casino gain a mathematical advantage in Roulette? Please provide specific examples for your answer. Please provide data and examples.
What are the different ways to calculate the cost of equity? Provide examples of when it...
What are the different ways to calculate the cost of equity? Provide examples of when it is appropriate to use each.
Show all work please Calculate the price and duration for the following bond when the going...
Show all work please Calculate the price and duration for the following bond when the going rate of interest is 4%. The bond offers 3.5% coupon rate, matures in 3 years and has a par value of $1,000. Show full calculations and fill the table below. YR PV of $ 1 Bond Cash Flows PV (Cash Flows) Year * Present Value of Cash Flow 1 2 3 3 Total Price = Duration    What would be the new price if...
Given the following information, what is the percentage capital gain/loss between today and period 1? Calculate...
Given the following information, what is the percentage capital gain/loss between today and period 1? Calculate your answer to two decimal places (e.g., 2.51) If there is a loss indicate this by using a negative number (e.g., -4.29) Today’s Dividend = $2.67 Expected Growth rate in dividends = 4.42 Discount Rate (Required return) = 7.34
Please find the gain/loss for each week. Total profit gained or loss for all 4 weeks....
Please find the gain/loss for each week. Total profit gained or loss for all 4 weeks. summarize the comparison between the 5 investments compared to S&P 500. Week 1 Week 2 Week 3 Week 4 10-Jun 17-Jun 24-Jun 1-Jul Recap for June Value/Share Value/Share Value/Share Value/Share GOOG Google $1,080.38 $1,092.50 $1,115.52 $1,097.95 ORCL Oracle $54.01 $53.13 $56.74 $58.01 PG Procter & Gamble $108.72 $110.99 $112.33 $110.49 AAPL Apple $192.58 $193.89 $198.58 $201.55 AMZN Amazon $1,860.63 $1,886.03 $1,913.90 $1,922.19 Total Amount...
Please explain the difference between a bond issued at face, a bond issued at a discount,...
Please explain the difference between a bond issued at face, a bond issued at a discount, and a bond issued at a premium
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT