Bhupatbhai Problem 16-15 (Algo) Profit potential associated with margin [LO 16-2]A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currentlyhas 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent.Assume Ms. Bright bought the bond three years ago when it had a price of $1,080. Furtherassume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest(known as buying on margin). She used the interest payments from the bond to cover theinterest costs on the loan.a. What is the current price of the bond? Use Table 16-2.Note: Input your answer to 2 decimal places.Price of the bondb. What is her dollar profit based on the bond's current price?Note: Do not round intermediate calculations and round your answer to 2 decimalplaces.Dollar profit

Step 1:Given Information:Par Value of Bond = $1,000Issued 25 Years AgoCoupon Rate = 12% Time to…

Answered: Problem 16-15 (Algo) Profit potential…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 36P

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Problem 07.046 - IRR of a bond purchased at discount rate A mortgage bond issued by Automation Engineering is for sale for $8,700. The bond has a face value of $10,000 with a coupon rate of 7% per year, payable quarterly. What rate of return will be realized if the purchaser holds the bond to maturity 8 years from now? The rate of return will be 11% per year.
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of interest is 5%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 9%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 13%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ Why does the longer-term (15-year) bond fluctuate more when interest rates change than does…
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 8%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ What will be the value of each of these bonds when the going rate of interest is 12%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent. Bond L $ Bond S $ Why does the longer-term (15-year) bond fluctuate more when interest…
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay 100 annual interest plus 1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S. b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
CHALLENGE PROBLEM The long-term liabilities section of Guyton Enterprises follows. The bonds outstanding on January 1, 20-1, have an annual coupon rate of 4% and had been issued several years ago at a price to yield 5% per year. The discount is amortized using the effective interest method. On December 31, 20-1, 900,000, 5% bonds were issued at a price to yield 6%. REQUIRED Compute the cash received from issuing the bonds on December 31, 20-1. (Hint: If you have not covered the effective interest method, assume that bond interest expense for 20-1 was 44,767.)
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of interest is 5%? Assume that there is only one more interest payment to be made on Bond S. What will be the value of each of these bonds when the going rate of interest is 8%? Assume that there is only one more interest payment to be made on Bond S. What will be the value of each of these bonds when the going rate of interest is 12%? Assume that there is only one more interest payment to be made on Bond S. b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
ices The Florida Investment Fund buys 98 bonds of the Gator Corporation through a broker. The bonds pay 12 percent annual interest. The yield to maturity (market rate of interest) is 14 percent. The bonds have a 20-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Using an assumption of semiannual interest payments: a. Compute the price of a bond. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Price of the bond b. Compute the total value of the 98 bonds. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Total value
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SE10-2 Determining Bond Premium or Discount Smith and Sons, Inc., decides to sell $1,000,000 in bonds to finance the construction of a new warehouse. The bonds will carry an annual coupon rate of interest of four percent, to be paid semiannually, and will mature in five years. (a) If the market rate of interest at the time of issuance is five percent, will the bonds sell at their face value, a discount, or a premium? (b) If the market rate of interest at the time of issuance is four percent, will the bonds sell at their face value, a discount, or a premium? (c) If the market rate of interest at the time of issuance is three percent, will the bonds sell at their face value, a discount, or a premium?
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent. Bond L: $ Bond S: $ What will be the value of each of these bonds when the going rate of interest is 10%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent. Bond L: $ Bond S: $ What will be the value of each of these bonds when the going rate of interest is 13%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent.…
Chapter 7 The Valuation and Characteristics of Bonds 325 PROBLEMS Assume All Bonds Pay Interest Semiannually. Finding the Price of a Bond: Concept Connection Example 7-1 (page 295) 1. The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate. a. What is the bond's price today if the interest rate on comparable new issues is 12%? b. What is the price today if the interest rate is 8%? c. Explain the results of parts (a) and (b) in terms of opportunities available to investors. d. What is the price today if the interest rate is 10%? e. Comment on the answer to part (d). oluo hond under the following conl:4:. hor

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