Adjust the separate financial statements of Parent Inc. to reflect the proposed acquisition. Adjust Parent's pro forma 2019 fina
ncial statements prepared in Milestone 1 to reflect the proposed acquisition (i.e., adjust Parent's forecasted financial statements for bond issuance, stock purchase, income from subsidiary, etc.). Support your statements with appropriate work papers and journal entries. Pro forma financial statements include a statement of operation, a statement of retained earnings, a balance sheet, and a cash flow statement. Prepare a pro forma consolidated worksheet. Prepare a pro forma consolidation worksheet for Parent Inc. and its proposed subsidiary as of December 31, 2019. To ensure you are starting with the right numbers, use the solution provided to Milestone 1 for the adjusted pro forma 2019 financial statements of Parent Inc., and the projected 2019 financial statements of Subsidiary Corporation in Table 1. Show all consolidation adjusting entries, including minority interest entries.
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Answer:
Explanation:
a. If you believe that the term structure next year will be the same as today’s, calculate the return on (i) the 1-year zero and (ii) the 4-year zero.
b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond O 4-year zero-coupon bond
The return on one year bond is = 5.2%
The price of 4 year bond today
Price of 4 year bond today = 807.22
If yield curves is unchanged, the bond will have 3-year maturity and price will be
If yield curves is unchanged, the bond will have 3-year maturity and price will be = 854.04
Return
Return = 5.8%
The longer term bond has given the higher return in this case at it's YTM fell during the holding period(4 -year)