A 10-year bond of a firm in severe financial distress has a coupon rate of 14% and sells for $900. The firm is currently renegot
iating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What are the stated and expected yields to maturity of the bonds
1 answer:
Answer:
13.91% and 7.45%
Explanation:
In this question, we use the RATE formula that is shown below:
In the first case,
Given that,
Present value = $900
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 12% = $120
NPER = 10 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this, the yield to maturity is 13.91%
In the second case,
Given that,
Present value = $900
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 12% ÷ 2 = $60
NPER = 10 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this, the yield to maturity is 7.45%
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Answer:
COGS overstated for 5,000
Explanation:
<em>The COGS will be overstated for the same ammount,</em> that is because of the inventory identity.
If ending Inventory has a problem, it will be transferred to COGS as well to equalize the formula
If ending Inventory is understated it means their alue is less than it's real value,
so to balance the formula COGS need to be overstated.