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 11 months agoRelated 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
ADVERTISEMENT
Latest Questions
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
- There are a large number of tasks involved in information technology and programming, and many of...
ADVERTISEMENT