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CaHeK987 [17]
3 years ago
7

GMM co. plans to issue annual coupon bonds with 7.5% coupon rate to the public, maturing in 10 years. The face value of the bond

is $1,000. You, as the CFO, want to decide how to set the price for the bond.
You notice that 2 years ago, your company issued a 15-year annual coupon bond with 8% coupon rate.
The current market price for the outstanding old bond is $950.

What is the fair price for the new 10-year annual coupon bond?


a. 1000

b. 924.70

c. 1024.70

d. 934.70

e. 1034.70
Business
1 answer:
SOVA2 [1]3 years ago
7 0

Answer:

  • What is the fair price for the new 10-year annual coupon bond?

b. 924.70

Explanation:

First it's needed to calculate the YTM of the current bonds, issued 2 years ago, if we applied the Present Value formula to the Principal and Coupons we get the YTM to the current bonds.

With a market price of $950, we can find the YTM of these bonds today, when there are 13 years left until the expiration date, the YTM is 8,66%.

If we apply this 8,66% rate to the new bond issue, we can obtain the price that could be accepted for the market.

Bond Value  

Principal Present Value  =  F /  (1 + r)^t  

Coupon Present Value   =  C x [1 - 1/(1 +r)^t] / r  

YTM of the Bond that was issued 2 years ago.  

The price of this bond it's $340 + $610 = $950  

Present Value of Bonds $340 = $1,000/(1+0,0866)^13    

Present Value of Coupons $610 =  $80 (Coupon) x 7,63  

7,63 =   [1 - 1/(1+0,0866)^13 ]/ 0,0866  

The bond price to be issued:    

The price of this bond it's $436 + $489 = $924,70    

Present Value of Bonds $436 = $1,000/(1+0,0866)^10      

Present Value of Coupons $489 =  $75 (Coupon) x 6,52    

6,52 =   [1 - 1/(1+0,0866)^10 ]/ 0,0866    

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Concord Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per boo
matrenka [14]

Answer:

C. $23,950

Explanation:

Given the above information, the adjusted cash book balance is computed as:

Adjusted cash balance per books = Cash opening + Collection by bank - Bank charge check printing - NSF check

= $20,200 + $4,880 - $130 - $1,000

= $23,950

Therefore, the adjusted cash balance per books on August 31 is $23,950

7 0
3 years ago
Five years ago, our company purchased land for $53,000. This year, the land is
Alenkinab [10]

Answer:60000

Explanation:

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1 year ago
The stockholders’ equity section of Pretzer Corporation consists of common stock ($10 par) $2,650,000 and retained earnings $532
CaHeK987 [17]

Answer:

A. $2,650,000 $3,312,500

B.$532,000 $291,500

C.$10 $10

Explanation:

Before Dividend After Dividend

(a)Stockholders’ equity

Paid-in capital

Common stock, $10 par

$2,650,000 $2,915,000

In excess of par value $106,000

Total paid-in capital

$2,650,000 $3,021,000

Retained earnings

$532,000 $291,500

Total stockholders’ equity

$3,182,000 $3,312,500

(b)Outstanding shares

$265,000 $291,500

(c)Par value per share

$10 $10

10×$26,500=$265,000

$2,650,000+$265,000=$2,915,000

$14×$26,500=$371,000-265,000

=$106,000

$265,000+$26,500=$291,500

8 0
3 years ago
Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 45,000 Sales tax 2,200 Freight cha
olganol [36]

Answer and Explanation:

The journal entries are shown below:

1. Equipment($45,000 + $2,200 + $700 + $1,000) $48,900  

                 To Accounts payable  $47,200    ($45,000 + $2,200)

                 To Cash  $1,700

(Being the equipment is purchased on cash and credit)

Since the equipment is purchased so it would be debited and the other two accounts i.e account payable and the cash is credited

2.Prepaid insurance $900  

              To Cash  $900

(Being the payment is recorded)

Since there is a prepaid insurance and the same is increased in assets so it would be debited and the cash is paid so it would be credited

3 0
3 years ago
Advertising revenues support the majority of the content we see in the media today. What professions and businesses does adverti
AveGali [126]

Answer: Mass communication, and Journalism are the professions that advertising supports.

Advertising helps all forms of businesses

Explanation: Advertisement involves sending out information about a product/services an organization provides to it's target market. Advertisement has several forms such as the use of radio broadcast, televised adverts, posters, billboards, social media adverts etc.

Advertising has created a career for individuals in the area of Mass communication and journalism.

8 0
3 years ago
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