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OLga [1]
3 years ago
6

Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 15-year zero coup

on bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 7 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Repeat part (b) using the straight-line method for the interest deduction. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Business
2 answers:
Vladimir79 [104]3 years ago
8 0

Answer:

a) Zero coupon bond does not pay periodical interest and formula to compute the value of a zero-coupon bond:

Value = Face Value / (1 +Yield / 2) ** Years to Maturity * 2

b) Interest deduction

After 1 year bond value from the above equation is 437.08

437.08 - 411.99 = 25.09

In the 14th year bond value from the above equation is 942.60

1000 - 942.60 = 57.40

c) Straight Line Method

Total Interest Paid = 1000 - 411.99

= 588.01

For yearly calculation

588.01 / 15 = 39.21

Further computation is done in the image below.

Tomtit [17]3 years ago
6 0

Answer:

A) 365.28

B) first year:

25.37593  

and during last year:

66.49

C) straight line will generate interest evenly throughout the life of the bond:

(1,000 - 365.28) / 15 = 42.32 interest expense per year

Explanation:

We solve for the present value of a lump sum as the zero-coupon is a bond with no interest payment only maturity.

Is important to notice the required return is compounding semiannually thus, there are two payment per year and the rate should be halved:

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  $1,000.00

time  30.00 (15 years x 2 payment per year)

rate  0.03500 (7% annual compounding semiannually)

\frac{1000}{(1 + 0.035)^{30} } = PV  

PV   356.2784

Now, we calculate the interest expense for the year

356.2784 x (1.035 x 1.035 -1 ) =  25.37593  

For the last year

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  $1,000.00

time  2.00

rate  0.03500

\frac{1000}{(1 + 0.035)^{2} } = PV  

PV   933.5107

1000 maturity - 933.51 value one year before = 66.49

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1. All of the following were powers given to the federal government by the National Banking Acts of 1863 and 1864 EXCEPT D. to dismantle privately owned banks 2. When economists measure opportunity cost to help determine the true value of economic decisions, they consider both the D. monetary and human value. 3. Which of the following was NOT an economic institution created in Europe to help foster economic unity among the countries there? D. European Union (EU) 4. Though the challenges of decision making are similar at all levels of the economy, B. the impact decreases as more people are involved. I think that the impact decreases as more people are involved because these people will be able to analyze many more aspects involving a decision as well as its corresponding consequences. The decision made will be a result of consensus among the people involved for the benefit of the majority if not all. 5. All EXCEPT which of the following options could describe the statement below? You get something and you give up something else. B. consumer sovereignty – This is a situation where the desire of the consumer affects the production of their desired goods. 6. Who proposed the first bank of the United States? B. Alexander Hamilton – He officially proposed the creation of the first bank during the first session of the First Congress. 7. As an economic institution, nonprofit organizations include D. professional organizations. The main purpose of these organizations is to make their profession better or more valuable for the people practicing the profession as well as for the benefit of the general public. 8. In economics, economic institutions serve to A. help establish and keep participation in the economy fluid. 9. Who is credited with first using cost-benefit analysis? B. Jules Dupuit – A French engineer and economist. He wrote an article in 1848 where the concept of Cost-Benefit analysis was presented. <span>
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netineya [11]

Answer:

$367,500

Explanation:

Estimation of the family’s life insurance needs

Using the easy method

Based on the information given we were told that Mark gross salary is $75,000 while is wife

Parveen is a stay-at-home mom this means that we would be using the easy method to estimate the family’s life insurance needs based on Mark gross salary of $75,000 because he is the only one that earn on a monthly basis.

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Investment in infrastructures (such as military bases,. building new roads or parks) and government programs (such as expensive healthcare or government funded jobs) tend to take a large amount from the government budget. This will most likely resulted in the increase of national debt.

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