Homework Answers
| 1 | |||||||||
| Price of bond is calculated as present value of future payment | |||||||||
| Future payment includes annual coupon amount and face value of bond at maturity | |||||||||
| Thus, correct answer is option (a) | |||||||||
| 2 | |||||||||
| Bond is issued at discount when the selling price is bond less than par value. | |||||||||
| This happens when expected return (YTM) on bond is higher than coupon rate | |||||||||
| Thus, correct answer is option (b) | |||||||||
| 3 | |||||||||
| Common shareholders have right to elect board of directors, right to dividend and share in distribution of assets in case of liquidation | |||||||||
| However they do not have right to participate in day to day activity of operations | |||||||||
| Thus, correct answer is option (a) | |||||||||
| 4. | |||||||||
| Treasury shares | Shares issued - Shares outstanding | ||||||||
| Treasury shares | 500000-450000 | ||||||||
| Treasury shares | $50,000 | ||||||||
| Thus, correct answer is option (c) | |||||||||
| 5. | |||||||||
| Amount credited to common share | Number of common shares issued*Par value of share | ||||||||
| Amount credited to common share | 100000*1 | ||||||||
| Amount credited to common share | $100,000 | ||||||||
| Thus, correct answer is option (a) | |||||||||
1. The price of a bond is equal to a. The present value of the face...
1. The price of a bond is equal to a. The present value of the face amount plus the present value of the stated interest payments. b. The future value of the face amount plus the future value of the stated interest payments. c. The present value of the face amount only. d. The present value of the interest only. 2. Which of the following is true for bonds issued at a discount? a. The stated interest rate is greater...
1. A bond with a face value of $200,000 and a quoted price of 102¼ has...
1. A bond with a face value of $200,000 and a quoted price of 102¼ has a selling price of a. $240,450. b. $204,050. c. $200,450. d. $204,500. 2. If the market interest rate is greater than the contractual interest rate, bonds will sell a. at a premium. b. at face value. c. at a discount. d. only after the stated interest rate is increased. 3. If Vickers Company issues 4,000 shares of $5 par value common stock...
QUESTION 33 The bond issue price is determined by calculating the 1. future value of the...
QUESTION 33 The bond issue price is determined by calculating the 1. future value of the stream of interest payments and the future value of the maturity amount. 2. future value of the stream of interest payments and the present value of the maturity amount. 3.present value of the stream of interest payments and the future value of the maturity amount. 4. present value of the stream of interest payments and the present value of the maturity amount. QUESTION 34...
1. Dan Corp. issues 60,000 of $3 stated value common stock for Building. The building has...
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On January 1, 2017, Moritz Company issued a five-year, $300,000, 6% bond that pays interest each...
On January 1, 2017, Moritz Company issued a five-year, $300,000, 6% bond that pays interest each January 1 and July 1. The market rate at the time of issuance was 7%. Assume that, on July 1, 2020, Moritz retired all of the bonds at 99. What gain or loss, if any, will Moritz recognize on the retirement of the bonds? (Round to the nearest dollar and choose the answer closest to your calculations). $1,202 loss $1,202 gain $16,181 gain None...
How is the market value of a bond issuance determined? By adding the present value of the principal amount to the p...
How is the market value of a bond issuance determined? By adding the present value of the principal amount to the present value of the interest payments. By computing the present value of the principal. By adding the face value of the principal amount to the stated value of the interest payments. By computing the present value of the interest payments.
Balance sheet Financing Options OPTION1 The company could issue $2,500,000 of long-term bonds, due in 8...
Balance sheet
Financing Options OPTION1 The company could issue $2,500,000 of long-term bonds, due in 8 years with a stated rate of interest, paid semiannually, of 4%. The market rate for similar debt is 6%. The bond issues for 85. OPTION 2 The company could issue $2,000,000 of long-term bonds, due in 7 years with a stated rate of interest, paid semiannually, of 6%. The market rate for similar debt is 4%. The bond issues for 110. OPTION 3 The...
Issue Price The following terms relate to independent bond issues: a. 500 bonds; $1,000 face value;...
Issue Price The following terms relate to independent bond issues: a. 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments b. 500 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments c. 800 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments d. 2,000 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments Use the appropriate present value table: PV of $1 and PV of Annuity of...
a. A bond that has $1 000 par value (face value) and a contract or coupon...
a. A bond that has $1 000 par value (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 8 percent of the $ 1,110 market value. The bonds mature in 8 years. The firm's average tax rate is 30 percent and its marginal tax rate is 36 percent. b. A new common stock issue that paid a $ 1.40 dividend last year. The par value of the stock...
Using the appropriate present value table and assuming a 2% annual market interest rate, determine the...
Using the appropriate present value table and assuming a 2% annual market interest rate, determine the present value, of a 3 year note with the face value of $5,000, and stated interest rate of 4%, with annual interest payments. Your firm agrees to the lend money to your supplier at the present value of the above note receivable. Write down the journal entries to record the initiation of such a loan at the calculated present value. Step 1: determine the...
1. The price of a bond is equal to a. The present value of the face amount plus the present value of the stated interest payments. b. The future value of the face amount plus the future value of the stated interest payments. c. The present value of the face amount only. d. The present value of the interest only. 2. Which of the following is true for bonds issued at a discount? a. The stated interest rate is greater...
QUESTION 33 The bond issue price is determined by calculating the 1. future value of the stream of interest payments and the future value of the maturity amount. 2. future value of the stream of interest payments and the present value of the maturity amount. 3.present value of the stream of interest payments and the future value of the maturity amount. 4. present value of the stream of interest payments and the present value of the maturity amount. QUESTION 34...
How is the market value of a bond issuance determined? By adding the present value of the principal amount to the present value of the interest payments. By computing the present value of the principal. By adding the face value of the principal amount to the stated value of the interest payments. By computing the present value of the interest payments.
Balance sheet
Financing Options OPTION1 The company could issue $2,500,000 of long-term bonds, due in 8 years with a stated rate of interest, paid semiannually, of 4%. The market rate for similar debt is 6%. The bond issues for 85. OPTION 2 The company could issue $2,000,000 of long-term bonds, due in 7 years with a stated rate of interest, paid semiannually, of 6%. The market rate for similar debt is 4%. The bond issues for 110. OPTION 3 The...
Issue Price The following terms relate to independent bond issues: a. 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments b. 500 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments c. 800 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments d. 2,000 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments Use the appropriate present value table: PV of $1 and PV of Annuity of...
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