Question

A $501,000 bond issue sold for $488,000. Therefore, the bonds:

A $501,000 bond issue sold for $488,000. Therefore, the bonds:

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A $501,000 bond issue sold for $488,000. Therefore, the bond

Is issued at discount.

The Interest rate of market must be more than interest rate of bond or Coupon rate.

The issue of price of bond is lower than face value only when market rate of interest on similar bond is higher than coupon rate of bond.

When market rate I higher then buyers are willing to pay ;lesser than what the price of bond is due to losing of opportunity cost. If an investor can buy similar bond at higher interest rate then why would he loose that income and buy a lower rate bond. This decrease in interest is compensated by discount on bond.

.

.

Leave a comment in case of confusion or if you have any confusion

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
2. Babcock Industries has just sold a bond issue with 10 warrants attached to each bond....
2. Babcock Industries has just sold a bond issue with 10 warrants attached to each bond. The bonds have a 20-year maturity, an annual coupon rate of 12%. They sold at an original offering price of $1,000. The current yield-to-maturity of bonds of equal risk, but without warrants is 15%. What is the value of each warrant?
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and a 10% coupon rate with interest being paid semiannually. The market rate of interest when the bonds were issued was 10%. Two years after the bonds were issued, the market rate rose to 13%. The most recent common-stock dividend for Olympic Corp was $3.45 per share. Due to its stable sales and earnings, the firm’s management predicts dividends will remain at the current level...
Yield to Call- Five year’s ago, Wyatt Corporation sold a 25-year bond issue with a 12%...
Yield to Call- Five year’s ago, Wyatt Corporation sold a 25-year bond issue with a 12% annual coupon rate and an 6% call premium. TODAY, they called the bonds. The bonds were originally sold at their face or par value of $1,000. Compute the realized rate or return, I/Y, for an investor who purchased the bond WHEN it was issued and who surrenders it today at the CALL price.
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and a 10% coupon rate with interest being paid semiannually. The market rate of interest when the bonds were issued was 10%. Two years after the bonds were issued, the market rate rose to 13%. The most recent common-stock dividend for Olympic Corp was $3.45 per share. Due to its stable sales and earnings, the firm’s management predicts dividends will remain at the current level...
Husky Enterprises recently sold an issue of 8-year maturity bonds. The bonds were sold at a...
Husky Enterprises recently sold an issue of 8-year maturity bonds. The bonds were sold at a deep discount price of $650 each. After flotation costs, Husky received $612 each. The bonds have a $1,000 maturity value and pay $30 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Round your answer to two decimal places. 10.12% would be entered as 10.12.
Reinegar Corporation is planning two new issues of 25-year bonds. Bond Par will be sold at...
Reinegar Corporation is planning two new issues of 25-year bonds. Bond Par will be sold at its $1,000 par value, and it will have a 10% semiannual coupon. Bond OID will be an Original Issue Discount bond, and it will also have a 25-year maturity and a $1,000 par value, but its semiannual coupon will be only 7.00%. If both bonds are to provide investors with the same effective yield, how many of the OID bonds must Reinegar issue to...
Assume that the City of Rockwall sold an issue of $1,000 maturity value, tax-exempt (municipal bond),...
Assume that the City of Rockwall sold an issue of $1,000 maturity value, tax-exempt (municipal bond), zero coupon bonds 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built into the issue was a nominal 10 percent, but with semiannual compounding. The bonds are now callable at a premium of 10 percent over the accrued value. What effective annual rate of return would an investor who bought the bonds when they were...
Five years ago, Firm XXX sold a 20-year bond issue with a 9% annual coupon rate...
Five years ago, Firm XXX sold a 20-year bond issue with a 9% annual coupon rate and a 6% call premium. Today, the company called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price.
Issue $500,000 of bonds. The bonds issue would be developed with a stated rate of 6%...
Issue $500,000 of bonds. The bonds issue would be developed with a stated rate of 6% and would be a 10 years bong with interest paid semi-annually on June 30 and December 31. The current market rate for a similar bond is 4%. John would like the journal entry for the bond issue and journal entry for first two interest payments. the company  would use the effective interest rate to amortize any bond discount or premium.
Determining the Proceeds from Bond Issues Madison Corporation is authorized to issue $820,000 of 7-year bonds...
Determining the Proceeds from Bond Issues Madison Corporation is authorized to issue $820,000 of 7-year bonds dated June 30, 2016, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016. Required: Determine the proceeds that the company will receive if it sells the following: (Click here to access the tables to use with this exercise and round your answers to two decimal places, if necessary.) 1....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT