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umka21 [38]
3 years ago
9

A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 8.5%, and sells for $1,150. Interest is

paid annually. (Assume a face value of $1,000 and annual coupon payments.) a. If the bond has a yield to maturity of 9.5% 1 year from now, what will its price be at that time? (Do not round intermediate calculations. Round your answer to nearest whole number.) b. What will be the rate of return on the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.) c. If the inflation rate during the year is 3%, what is the real rate of return on the bond? (Assume annual interest payments.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)
Business
1 answer:
andrey2020 [161]3 years ago
6 0

Answer:

a. Coupon payment = 8.5% of $1000 = $85

i = 9.5%

n = 9

m =$1,000

Price of the bond after one year P1 = C* [1- 1/ (1+i)^n] /i + M / (1+i)^n

P1 = $85 * [1 – 1 / (1+9.5%) ^9] /9.5% + 1000 / (1+9.5%) ^9

P1 = $499.40 + $441.85

P1 = $941.25

b. The rate of return on the bond = (Income from one coupon payment + capital appreciation)/ Initial price of the bond

The rate of return on the bond = [$85 + ($941.25 - $1,150)]/ $1,150

The rate of return on the bond = ($85 - $208.75)/ $1,150

The rate of return on the bond = - $123.75/ $1,150

The rate of return on the bond = - 0.1076

The rate of return on the bond = -10.76%

c. f the inflation rate during the year is 3%

Real rate of return =  [(1+ Nominal rate of return)/ (1+ Inflation rate)]-1

Where Nominal rate of return = - 10.76%, Inflation rate = 3%

Real rate of return =   [(1-10.76%)/ (1+ 3%)]-1

Real rate of return = 0.08664 -1

Real rate of return = - 0.1336

Real rate of return = -13.36%

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Answer:

d. $(6,642)

Explanation:

The present value is the sum of after tax cash flows.

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Cash flow in year 0 = $-81,000

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I = 10%

Present value = $(6,642)

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

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The following data were taken from the records of Clarkson Company for the fiscal year ended June 30, 2017.Raw Materials Invento
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Answer:

A) cost of goods manufactured schedule

Factory Insurance                                                  4,700

Factory Utilities                                                    29,100

Factory Machinery Depreciation                        19,000

Direct Labor                                                        147,750

Plant Manager`s Salary                                       65,600

Indirect Labor                                                      26,560

Factory Property Taxes                                         9,810

Factory Repairs                                                      1,600

Add Beginning Work in Process Inventory       26,800

Less Closing Work in Process Inventory          (22,300)

Cost of Goods Manufactured                         $308,620

B) income statement through gross profit

Sales Revenue                                                                   564,000

Less Sales Discounts                                                            (4,700)

Net Sales                                                                            559,300

Less Cost of Goods Sold :

Finished Goods Inventory                                98,200

Add Cost of Goods Manufactured                 308,620

Less Closing Finished Goods Inventory         (26,100)   (380,720)

Gross Profit                                                                         178,580

C) current assets section of the balance sheet at June 30,2017

<u>Current Assets</u>

Raw Materials Inventory      46,000

Work in Process Inventory   22,300

Finished Goods Inventory    26,100

Accounts Receivable            27,100

Cash                                      35,600

Total Current Assets           157,100

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<em>Open a Raw Materials T - Account as follows :</em>

<u>Debit :</u>

Opening Balance                                                      $51,100

Purchases                                                                $97,500

Totals                                                                      $148,600

<u>Credit :</u>

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Requisitioned for Production  (Balancing figure) $102,600

Totals                                                                      $148,600

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