Question

In: Finance

A & B Corporation issued bonds for 10 years, with face value of $10,000 and a...

A & B Corporation issued bonds for 10 years, with face value of $10,000 and a 6% annual coupon rate. What is the current market price of the bond if the market rate is 8%? Assume semi-annual payments.

How would your answer change if the market rate falls to 6%?

Solutions

Expert Solution

                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =10x2
Bond Price =∑ [(6*10000/200)/(1 + 8/200)^k]     +   10000/(1 + 8/200)^10x2
                   k=1
Bond Price = 8640.97
                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =10x2
Bond Price =∑ [(6*10000/200)/(1 + 6/200)^k]     +   10000/(1 + 6/200)^10x2
                   k=1
Bond Price = 10000

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

P&P Corporation has issued 10,000 units of face value bonds that mature in 8 years and...
P&P Corporation has issued 10,000 units of face value bonds that mature in 8 years and pay a coupon rate of 6% paid annually. Calculate the yield if each bond unit is selling at $980.
XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated...
XYZ Corporation issued bonds on January 1, 2020 with a face value of $1,000, 10% stated interest rate, with semi-annual payments, and a maturity date of December 31, 2024 (4 years). The market interest rate is 8%. Required: (Answers may be rounded to the nearest dollar) 1. Compute the market price of the bonds and the journal entry to record issuance of the bonds on January 1, 2020. 2. Record the journal entry for the first semi-annual interest payment on...
Churchill Corporation just issued bonds that will mature in 10 years.  George Corporation just issued bonds that...
Churchill Corporation just issued bonds that will mature in 10 years.  George Corporation just issued bonds that will mature in 12 years.  Both bonds are standard coupon bonds and cannot be retired early.  The two bonds are equally liquid.  Which of the following statements is correct? If the yield curve for Treasury securities is flat, Churchill's bond will have the same yield as George's bonds. If the yield curve for Treasury securities is upward sloping, George's bonds will have a higher yield than Churchill's...
Suppose a US company issued 10-year bonds 5 years ago with a face value of $1,000...
Suppose a US company issued 10-year bonds 5 years ago with a face value of $1,000 and an annual coupon rate of 6%. The coupons are paid semi-annually and the bonds are currently trading in the market at a price of $1,089.83. The company is considering whether to call the bonds and issue new 5- year bonds at a par value of $1,000. Based on this information, answer the following four questions. (i) What is the yield to maturity on...
On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%....
On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%. The bonds are issued at 96, and dated January 1. Interest is paid annually on January 1. The end of Ridge’s fiscal year is December 31. Required: 1. Prepare the necessary journal entries for the year 2019. 2. Show the balance sheet presentation on December 31, 2019. 3. Prepare the necessary journal entries for the year 2020. 4. What is the carrying value of...
On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%....
On January 1, 2019, Ridge Company issued $10,000,000 face value bonds for 10 years at 12%. The bonds are issued at 96, and dated January 1. Interest is paid annually on January 1. The end of Ridge’s fiscal year is December 31. Required: 1.      Prepare the necessary journal entries for the year 2019. 2.      Show the balance sheet presentation on December 31, 2019. 3.      Prepare the necessary journal entries for the year 2020. 4.      What is the carrying value of the bonds at the...
On May 1, 2019, Star Corporation issued $440,000 face value, 10 percent bonds at 98.6. The...
On May 1, 2019, Star Corporation issued $440,000 face value, 10 percent bonds at 98.6. The bonds are dated May 1, 2019, and mature 10 years later. The discount is amortized on each interest payment date. The interest is payable semiannually on May 1 and November 1. On May 1, 2021, after paying the semiannual interest, the corporation purchased the outstanding bonds from the bondholders and retired them. The purchase price was 99.0. Required: Prepare the entry in general journal...
1. On January 1,2018,Banno Corporation issued$1,500,000 Face Value of 10% coupon bonds at a price of...
1. On January 1,2018,Banno Corporation issued$1,500,000 Face Value of 10% coupon bonds at a price of 103, due December 31 2027. Interest on the bonds is payable annually each December 31. The premium on the bond is being amortized on a straight-line basis over the ten years (Straight-line is not materially different in effect from the preferred effective interest method). The bonds are callable at a price of 100 1⁄2 and on January 1, 2024, called all $1,500,000 Face amount...
On October 1, 2016 Macklin Corporation issued 10-year bonds with a face value of $40,000,000. Interest...
On October 1, 2016 Macklin Corporation issued 10-year bonds with a face value of $40,000,000. Interest is paid annually on December 31. The company uses the effective interest method. Coupon rate is 2% and market rate is 4% a) Find the issue price. b) The entry to record the issuance of the bonds. c) Prepare the journal entry to record the first interest payment on December 31.
On Jan. 1, 2018, B&Z Inc. issued 12% bonds with a face value of $10 million...
On Jan. 1, 2018, B&Z Inc. issued 12% bonds with a face value of $10 million dated Jan. 1. The bonds mature in 5 years. Currently, the market rate for similar bonds is 10%. Interest is paid quarterly. Calculate the price of the bonds. Provide the journal entry for the seller of the bonds assuming the sale takes place on Jan. 1. Assume the market rate at the time of issuance was 12%. Recalculate the price of the bonds based...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT