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yaroslaw [1]
3 years ago
11

A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. In

terest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,060. Further assume Ms. Bright paid 40 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan.
a. What is the current price of the bond? (Input answer to 2 decimal places.)
b. What is her dollar profit based on the bond's current price? (Do not round intermediate calculations and round answer to 2 decimal places.)c. How much of the purchase price of $1,060 did Ms. Bright pay in cash? (Do not round intermediate calculations and round answer to 2 decimal places.)
Business
2 answers:
natita [175]3 years ago
8 0

Answer:

a) $1,153.72

b) $93.72

c) $424

Explanation:

Given:

Original bond was issued at 12%

YTM = 10%

Years left, N = 15 years.

a) The current price of bond:

Using Excel function, we have:

=PV(10%/2,2*15,-12%*1000/2,-1000)

= $1153.72

The current price of bond is $1,153.72

b) Dollar profit based on bond's current price will be calculated as:

Bond's current price - purchase price

= $1,153.72 - $1,060

= $93.72

Dollar profit = $93.72

c) The purchase price of $1,060 Ms. Bright paid in cash will be:

$1,060 * 40%

= $424

cricket20 [7]3 years ago
5 0

Answer:

A.) $1,152.12

B.) $92.12

C.) $424.00

Explanation:

Given

period (t) = 15 years

Coupon rate = 12%

Rate (r) = 10%

Par value = $1000

Purchase price = $1060

A.) Current price of bond :

Price = Coupon payment × [(1 - (1 + r)^-t) /r] + [par value / (1+r)^t]

Coupon payment = 12% × 1000 = $120

Plugging our values

Price = 120 × [(1-(1+0.1)^-15)/0.1] + [1000/1.1^15]

Price = $1,152.12

B.) Dollar profit on bond

Dollar profit = Current price - Purchase price

Dollar profit = $1,152.12 - $1060 = $92.12

C.)Amount paid in cash

40% of purchase amount was paid in cash

0.4 × 1060 = $424.00

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Irina-Kira [14]

The question requires matching the terms to their definitions.

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8 0
2 years ago
Wolsey Industries Inc. expects to maintain the same inventories at the end of 2016 as at the beginning of the year. The total of
iogann1982 [59]

Answer:

Wolsey Industries Inc.

A. Estimated Income Statement for year ended December 31, 2016

Sales Revenue                                           $4,320,000

Cost of goods sold                                      3,062,000

Gross profit                                                $1,258,000

Expenses:

7. Sales salaries and  commissions 326,000

8 Advertising                                      40,000

9 Travel                                               12,000

10 Miscellaneous selling                    34,600

11 Administrative expenses:

12 Office and officers’ salaries       132,000

13 Supplies                                       118,000

14 Miscellaneous administrative      40,400  $703,000

Net income                                                    $555,000

B. Expected Contribution Margin ratio = 25%

C. Break-even sales in units and dollars:

Sales in units:  13,125

Sales in dollars:  $2,100,000

D.  The break-even sales is 13,125 units and $2,100,000

E. The expected margin of safety:

Sales dollars:   $2,220,000

Percentage of Sales: 48.6% ($2,100,000/$4,320,000)

F. Operating leverage: = Contribution/Net operating income

= $1,080,000/$555,000 = 1.95

Explanation:

a) Data and Calculations:

1                                                 Estimated           Estimated

                                                 Fixed Cost     Variable Cost (per unit sold)

2 Production costs:

3 Direct materials                             —                  $46.00

4 Direct labor                                    —                    40.00

5 Factory overhead                $200,000.00          20.00

6 Selling expenses:

7 Sales salaries and

commissions                               110,000.00            8.00

8 Advertising                               40,000.00             —

9 Travel                                        12,000.00             —

10 Miscellaneous selling

expense                                         7,600.00             1.00

11 Administrative expenses:

12 Office and officers’ salaries 132,000.00               —

13 Supplies                                  10,000.00             4.00

14 Miscellaneous administrative

expense                                      13,400.00              1.00

15 Total                                 $525,000.00       $120.00

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Sales volume = 27,000 units

Sales revenue = $4,320,000 ($160 * 27,000)

Variable production cost = $106 per unit

Total variable production costs = $2,862,000 ($106 * 27,000)

Fixed production cost =                     200,000

Total production cost =                $3,062,000

                                                   Total          Per Unit

Sales revenue =                    $4,320,000    $160

Variable production costs = $2,862,000      106

Variable expenses                     378,000         14

Total variable costs              $3,240,000    $120

Contribution =                       $1,080,000      $40

Contribution margin ratio = 25% ($40/$160 * 100)

Total fixed costs:

Production costs = $200,000

Selling and admin = 325,000

Total fixed costs = $525,000

Break-even point = Fixed costs/Contribution margin per unit

= $525,000/$40 = 13,125

Break-even point in dollars = $525,000/25% = $2,100,000

7. Sales salaries and  commissions 326,000  (110,000.00 + (27,000 * 8.00))

8 Advertising                                      40,000

9 Travel                                               12,000

10 Miscellaneous selling

expense                                             34,600 (7,600.00 + (27,000 * 1.00))

11 Administrative expenses:

12 Office and officers’ salaries       132,000

13 Supplies                                       118,000 (10,000.00 + (27,000 * 4.00))

14 Miscellaneous administrative

expense                                          40,400 (13,400.00 + (27,000 * 1.00))

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