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2 answers:
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Answer:
Yield to Call: 12.68%
Explanation:
We will calculate the YTC
To do so we will list on exce lthe cash flow for the bond life:
0 -1000.0 (purchased at face value)
1 120.00 (coupon payment: 1,000 x 12%)
2 120.00
3 120.00
4 120.00
5 120.00
6 120.00
7 1190.00 (1,70 call price + 120 coupon payment)
below the cash flow we enter the IRR function and select the cash flow
this will give us the YTC: 0.126795
There is another way to calcualte the YTC but is done by approximation and is not an exact answer:
Coupon value = 120
Face value = 1,000
P = call = 1,070
n= 7 years
Result: 12.5603865%
as notice this differs with the excel answer as it is an aproximation nto an exact answer.
Answer:
At June 30th, 2020 an investor will purchase the bonds at 197,327 which is the present value of the bond at the market rate.
<u>June 30th entries:</u>
interest expense 11,627.4 debit
discount on bonds payable 627.4 credit
cash 11000 credit
/effective method
interest expense 11,776.25 debit
discount on bonds payable 776.25 credit
cash 11000 credit
/straight-line method
the tables are attached to the answer.
Explanation:
effective method
procceds 193,790
face value 200,000
discount on bonds payable 6,210
bond rate 0.055 (11% annual / 2 payment per year)
market rate 0.06 (12% annual / 2 payment per year)
straight line:
6,210 / 8 (4 years and 2 payment per year) = 776,25
