The accounting process of ensuring accuracy and completeness includes Journalizing transactions timely using ledgers and journal
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Answer:
d. Bond Y sells for more than bond X
Here is the question in proper order:
Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each matures in 10 years. Bond X pays 8% interest while bond Y pays 9% interest. The current market rate of interest is 8%. Which of the following is correct?
a. Bond X sells for more than bond Y.
b. Both bonds sell at a discount.
c. Both bonds sell for the same amount.
d. Bond Y sells for more than bond X
Explanation:
Bond price is calculated using the relation
where
C = coupon amount
r = current market rate of interest
n = no of years
M = face value (amount)
Now for bond X
C = $100,000 x 8% = $8,000
r = 8% or 0.08
n = 10 years
M = face value
substituting in the equation
=8,000 x [1-{1/(1.08)10/0.08 +100,000/(1.08)10
=8,000 x [1-{1/2.158925]0.08 +100,000/2.158925
=8,000 x [1-0.463193]0.08 + 46,319.35
=8,000 x [0.5368065]0.08 +46,319.35
=8,000 x 6.7100814 +46,319.35
= 53,680.65 +46,319.35
=$100,000
Bond price = $100,000
For bond Y
only C is different and C = $9000
= 9,000 x [1-{1/(1+0.08)10}]/0.08 + 100,000/(1+0.08)10
=9,000 x [1-{1/(1.08)10/0.08 +100,000/(1.08)10
=9,000 x [1-{1/2.158925]0.08 +100,000/2.158925
=9,000 x [1-0.463193]0.08 + 46,319.35
=9,000 x [0.5368065]0.08 +46,319.35
=9,000 x 6.7100814 +46,319.35
= 60,390.73 +46,319.35
=$ 106,710.08
Answer:
The solution and complete explanation for the above question and mentioned conditions is given below in the attached document.i hope my explanation will help you in understanding this particular question.
Explanation:
