ZuoTi.Pro
Question

Four years after the original issue (#1 above), with 8 years remaining on the original bond,...

  1. Four years after the original issue (#1 above), with 8 years remaining on the original bond, all banks are taken over the federal government and the current market rate of interest for all “new” bonds will be 3% (market rate of interest) and the current owner decides to sell the bond and move to Australia which has a stronger form of capitalism.

  1. Will the bond be sold at a “premium”, “par”, or “discount”?
  2. What will be the price and the proceeds?
business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Here in the question the data is limited to find the price and the proceeds we need to have the face value, realisable value of the bond and the coupon rate of the bond.

But generally after the issue of the bond if the market interest rate is lower than the coupon rate the bond will be traded at premium, if the market interest rate is higher than the coupon rate then the bond will be traded at discount and if market interest is equal to the coupon interest rate then the bond will be traded at par.

Value of any bond is equal to the present value of future cash infows discounted at market interest rate.

0 0
Add a comment
Know the answer?
Add Answer to:
Four years after the original issue (#1 above), with 8 years remaining on the original bond,...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due to...

    Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due to a sudden surge in inflation due to our national debt, the market rate of interest is currently 7%. Interest is paid semi-annually. Show work! Will the bond be sold at a “premium”, “par”, or “discount”? What will be the price and the proceeds? 2) Four years after the original issue (#1 above), with 8 years remaining on the original bond, all banks are taken...

  • 1.   Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due...

    1.   Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due to a sudden surge in inflation due to our national debt, the market rate of interest is currently 7%. Interest is paid semi-annually.   Show work! a.   Will the bond be sold at a “premium”, “par”, or “discount”? b.   What will be the price and the proceeds? 2.   Four years after the original issue (#1 above), with 8 years remaining on the original bond, all...

  • Acme Products has a bond issue outstanding with 8 years remaining to maturity, a coupon rate...

    Acme Products has a bond issue outstanding with 8 years remaining to maturity, a coupon rate of 10% with interest paid annually, and a par value of $1,000. If the current market price of the bond issue is $814.45, what is the yield to maturity, rd?

  • 1. A bond with two years remaining until maturity offers a 3% coupon rate with interest...

    1. A bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, find the price of this bond per 1000 of par value. 2. A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, find the price of this bond per 1000 of par value. 3. A zero-coupon bond matures in...

  • Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a...

    Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $80 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 9%. What should this consol bond sell for in the market? What if the interest rate should fall to 8%? Rise to 10%? Why does the...

  • Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have...

    Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 5.5 percent. The bonds have a yield to maturity of 8 percent. 1). What is the current market price of these bonds? $869.84 2). What is the current yield? 6.32% 3). What is the capital gains yield? 1.68% 4). These bonds sell at a. par b. a premium c. a discount Discount. Please show...

  • Two years ago, Jetblue Airlines sold a $250 million bond issue to finance the purchase of...

    Two years ago, Jetblue Airlines sold a $250 million bond issue to finance the purchase of new jet airliners. These bonds were issued in at par value with an original maturity of 12 years and a coupon rate of 12%. Determine the value today of one of these bonds to an investor who requires a 14% rate of return on these securities. Is it a discount or premium bond and why? How did you calculate at par value?

  • The Canadian Government has once again decided to issue a consol (a bond with a never...

    The Canadian Government has once again decided to issue a consol (a bond with a never ending interest payment and no maturity date). The bond will pay $80 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 7​%. What should this consol bond sell for in the​ market?

  • 1) The principal amount of a bond that is repaid at the end of the loan...

    1) The principal amount of a bond that is repaid at the end of the loan term is called the bond's: A) coupon B) face value. C) maturity D) yield to maturity E) coupon rate. 2) A bond with a face value of $1,000 that sells for $1.000 in the market is called a bond A) par value B) discount C) premium D) zero coupon E) floating rate 3) A bond with a coupon rate of 6 percent that pays...

  • Perpetuities. The Canadian Government has once again decided to issue a consol​ (a bond with a​...

    Perpetuities. The Canadian Government has once again decided to issue a consol​ (a bond with a​ never-ending interest payment and no maturity​ date). The bond will pay $70 in interest each year​ (at the end of the​ year), but it will never return the principal. A) If the current discount rate for Canadian government bonds is 10​%, what should this bond sell for in the​ market? B) If the current discount rate for Canadian government bands would rise to 11%?...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT