1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
mestny [16]
4 years ago
11

Midland Utilities has outstanding a bond issue that will mature to its $1,000 par value in 11 years. The bond has a coupon inter

est rate of 13% and pays interest annually
a.  Find the value of the bond if the required return is​ (1)13​%, (2)17​%, and​ (3) 10%.


b.  Use your finding in part a to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.


c.  What two possible reasons could cause the required return to differ from the coupon interest​rate?
Business
1 answer:
MArishka [77]4 years ago
3 0

Answer:

at 13% --> $1,000

at 17%  -->$806.54

at 10%  --> $1,194.85

When the rates do not match people will only accept the bond if their desired market return can be acheive. Because, the coupon payment are fixed the only way to do so is by changing the price ofthe bond.

So bond with coupon rate above market are trade at a price higher than face value while, below market traded at lower price.

Explanation:

The market value of a bond is the present value of the future coupon payment and maturity given the current market rate

When the market rate matches the coupon rate then the bond is at par and sales at face value.

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 130.000

time 11

rate 0.17

130 \times \frac{1-(1+0.17)^{-11} }{0.17} = PV\\

PV $628.7337

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

Maturity   1,000.00

time   11.00

rate  0.17

\frac{1000}{(1 + 0.17)^{11} } = PV  

PV   177.81

PV c $628.7337

PV m  $177.8097

Total $806.5435

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 130.000

time 11

rate 0.1

130 \times \frac{1-(1+0.1)^{-11} }{0.1} = PV\\

PV $844.3579

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

Maturity   1,000.00

time   11.00

rate  0.1

\frac{1000}{(1 + 0.1)^{11} } = PV  

PV   350.49

PV c $844.3579

PV m  $350.4939

Total $1,194.8518

You might be interested in
Carol thomas will pay out $6000 at the end of year two and $8000 at the end of year three. then carol will recieve $10,000 at th
insens350 [35]

Solution:

PV = FV x PV_{if} (App. B: 10%, 2 periods)

       = $6,000 x 0.826 - $4,956

PV = FV x PV_{if} (App. B: 10%, 3 periods)

    = $8,000 x 0.751 = $6,008

PV = FV x PV_{if} (App. B: 10%, 4 periods)

    = $10,000 x 0.683 = $6,830

Net Value of Payments = ($4,956) + ($6,008) + $6,830 = ($4,134)  

5 0
4 years ago
Which type of investment typically charges the investor lowest fees
Norma-Jean [14]
The lowest fees for investors are typically found in a type of passive investing called the Index Fund investing.
4 0
3 years ago
Summit Products, Inc. is interested in producing and selling an improved widget. Market research indicates that customers would
astra-53 [7]

Answer:

$60

Explanation:

For computing the target cost, first we have to determine the profit per unit which is shown below:

= Selling price × return on sales percentage

= $80 × 25%

= $20

Now the target cost would be

= Selling price per unit - profit per unit

= $80 - $20

= $60

All other information which is given is not relevant. Hence, ignored it

8 0
3 years ago
2019 2018 2017 2016 2015 Sales $ 512,623 $ 332,872 $ 260,056 $ 191,218 $ 142,700 Cost of goods sold 253,785 164,657 130,427 95,5
Lelu [443]

Answer:

Please find the complete solution in the attached file.

Explanation:

4 0
3 years ago
A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to cust
labwork [276]

Answer:

Journal  entry.

Debit creditors account with $15,000 and credit company's sales account with $15,000

Being quarterly journal subscription paid in advance last year.

Explanation:

The advance subscription payments customers are taken as creditors of the company. The company owes them the service of mailing the quarterly journals to them. The total creditors payment ($45,000) will be recorded as credit entry in the books of the company's creditors account and as the company discharges the liability, the amount is passed to debit side of the creditor's account. We assume equal quarterly subscription amount, which will result in $15,000 for each quarter in a year.

3 0
3 years ago
Other questions:
  • As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay ou
    9·1 answer
  • Which financial transaction is associated with the home rental process?
    6·2 answers
  • What is the goal of all economic decisions in a market economy?
    5·1 answer
  • Identify the following transactions that they are whihc type of market.
    14·1 answer
  • Consider the following information of Kenton Inc.: Fixed costs $42,000 Target net income $14,000 Contribution margin per unit $7
    8·1 answer
  • A large corporation that has its headquarters in Boston, manufacturing plants in Indonesia, and regional offices and retail stor
    12·1 answer
  • You have $100,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly. a. How many dollars in wit
    5·1 answer
  • What is the discount yield on a $10,000 million certificate of deposit (CD) is selling for $9877. Assume a 181-day investment.
    11·1 answer
  • A country that relies on the pragmatic nationalist view would say that:.
    10·1 answer
  • Harry just received $2,000 for graduation. He plans on investing this money for five years at 8%
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!