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pishuonlain [190]
3 years ago
7

INVESTOR Corp. was interested in investing in bonds and, on 01/01/2012 purchased 8% bonds dated January 1, 2012. These bonds had

a face amount of $10 million, pay interest on 06/30 and 12/31, and mature in 10 years. For bonds of similar risk and maturity, the market yield is 6%. INVESTOR Corp. uses the effective interest method. 1. Prepare INVESTOR Corp.’s entry to record the bond purchase? 2. Prepare INVESTOR Corp.’s entry on 06/30/2012 and on 12/31/2012 to record interest?

Business
1 answer:
seropon [69]3 years ago
5 0

Answer

The answer and procedures of the exercise are attached in the following archives.

Step-by-step explanation:

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.  

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.In 2027, instead of cashing in the bond for its then current value, you decide to hold the bond until it doubles in face value
cricket20 [7]

Answer:

The question is not complete,find below complete questions:

If you purchased a $50 face value bond in early 2017 at the then current interest rate of .10 percent per year, how much would the bond be worth in 2027? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2027, instead of cashing the bond in for its then current value, you decide to hold the bond until it doubles in face value in 2037. What annual rate of return will you earn over the last 10 years?

The bond is worth $50.50 in the year 2027

The annual rate of return is 7.07%

Explanation:

The future value of the bond is given by the below formula:

FV=PV*(1+r)^N

where PV  is the present of the bond of $50

r is the rate of return of 0.10 percent=0.001

N is the duration of the bond investment of 10 years

FV=50*(1+0.001 )^10

FV=$50.50

However for the face of the bond to double i.e to $100, the rate of return can be computed thus:

r=(FV/PV)^(1/N)-1

where FV=$100 (double of $50)

FV=$50.50(current value in 2027)

N=10

r=($100/$50.50)^(1/10)-1

r=0.070707543

r=7.07%

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Hey there,
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