Question

Your investment department has researched possible investments in corporate debt securities. Among the available investments are...

Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2021. Prices were determined by underwriters at different times during the last few weeks. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Company Bond Price Stated Rate 1. BB Corp. $ 107 million 15 % 2. DD Corp. $ 100 million 14 % 3. GG Corp. $ 93 million 13 % Each of the bond issues matures on December 31, 2040, and pays interest semiannually on June 30 and December 31. For bonds of similar risk and maturity, the market yield at January 1, 2021, is 14%. Required: Other things being equal, which of the bond issues offers the most attractive investment opportunity if it can be purchased at the prices stated? The least attractive?

Most attractive Investment   
Least attractive investment
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

Corporations Particulars Amount($)
BB Corp: Interest (7.5%*13.3317*100 million) 99,987,750
Principal (0.0668 * 100 million) 6,680,000
Price of the bond $106,667,750
DD Corp: Interest (7% * 13.3317*100 million) 93,321,900
Principal (0.0668 * 100 million) 6,680,000
Price of the bond $100,001,900
GG Corp Interest (6.5% * 13.3317*100 million) 86,656,050
Principal (0.0668 * 100 million) 6,680,000
Price of the bond $93,336,050

.

Most attractive investment GG Corp
Least attractive investment BB Corp
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
Your investment department has researched possible investments in corporate debt securities. Among the available investments are...
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2021. Prices were determined by underwriters at different times during the last few weeks. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Company Bond Price Stated Rate 1. BB Corp. $ 109 million 11 % 2. DD Corp. $ 100 million 10 %...
Eli Fish Corp. (EFI), a passive investor, owns various investments in debt and equity securities. EFI’s...
Eli Fish Corp. (EFI), a passive investor, owns various investments in debt and equity securities. EFI’s policy is to prepare journal entries for adjustments and accruals at year end. The company elects to reclassify reserves (accumulated other comprehensive income) to retained earnings upon derecognition of investments in equity securities at FVOCI-elect. EFI engaged in various investment-related transactions as detailed below. All interest and dividend payments were received on the scheduled payment dates. While the resulting journal entries will all be...
Recording Entries for HTM Debt Securities— Effective Interest Method On January 1, 2020, Baker Corp. purchased...
Recording Entries for HTM Debt Securities— Effective Interest Method On January 1, 2020, Baker Corp. purchased $32,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method....
Exercise 12-11 (Algo) Available-for-sale securities [LO12-1, 12-4] Mills Corporation acquired as a long-term investment $240 million...
Exercise 12-11 (Algo) Available-for-sale securities [LO12-1, 12-4] Mills Corporation acquired as a long-term investment $240 million of 5% bonds, dated July 1, on July 1, 2021. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 3% for bonds of similar risk and maturity. Mills paid $280 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of...
Problem 17-05 (Part Level Submission) Swifty Company has the following securities in its investment portfolio on...
Problem 17-05 (Part Level Submission) Swifty Company has the following securities in its investment portfolio on December 31, 2020 (all securities were purchased in 2020): (1) 3,300 shares of Anderson Co. common stock which cost $62,700, (2) 9,200 shares of Munter Ltd. common stock which cost $515,200, and (3) 5,500 shares of King Company preferred stock which cost $231,000. The Fair Value Adjustment account shows a credit of $9,600 at the end of 2020. In 2021, Swifty completed the following...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described itself as "a quarterly survey of business leaders from across the globe … surveying 11,500 businesses in 40 economies across the globe on an annual basis." 1 According to the 2011 IBR, the Asia Pacific region had a higher percentage (27 percent) of female chief executive officers (CEOs) than Europe and North America. Japan is the only Asia Pacific region exception. The report further...
Pfizer was established in 1849 in Brooklyn, New York by cousins Charles Pfizer and Charles Erhart...
Pfizer was established in 1849 in Brooklyn, New York by cousins Charles Pfizer and Charles Erhart with a loan of $2,500 from Pfizer’s father.2 Today, 167 years later, Pfizer Inc. has international revenues of $49 billion, which makes it the second-largest pharmaceutical manufacturer in the world.3 Despite Pfizer’s success, the company has faced many challenges over the last few decades. The pharmaceutical industry is heavily influenced by legal, political, and technological forces, and all indications are that the industry will...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT