Question No : 1
First we need to fid out the interest
Interest is calculated by multiplying face value of bond with interest rate.As the interest is paid semi annually we take the half of the rate,as below
Interest = 75000 * 6/100 = 4500
Present Value of Interest and Dollar are required for the computing the market value
(a) Present Value of Interest
As the current market rate is 10,we will take the half ,ie 5 because interest pays semi annually. Using these figures the present value of the annuity factor is 7.7217
Present value of Interst payments = interest amount * annuity factor
= 4500 * 7.7217
= 34747.65
(b) Present Value of one dollar
Using the present value of $1 table we will get 0.6139 as the interest rate taken as 5% (semiannually)
Market Price =(face value of bond * present value of bond) + Interest
= (75000 *0 .6139) + 34747.65
= 46042.5 + 34747.65
= 80790.15
Question 2
All the expenses incurred to acquire the computer should be added to the cost of the computer.
Here ,an annual payment $6000 paid for 10 years = 6000*10 = $ 60000
Interst @ 8 % = 60000*8% = $ 4800
As this amount is received from the lessor it can be deducted from the amount paid
ie, 60000-4800 =$ 55200
Question 3
First we will calculate the future value received from Buyer B
Amount received in 20 installments = 110000 * 20 = 2200000
Future Value = Amount received * future rate
= 2200000 * 1.1^10
= $ 56,98,000
it would be better to sell the land to Buyer B
4. Deter nine the market price of a $750,000, five-year, 12% (pays interest semiannually) bond issue...
CHAPTER 7 INSTRUCTIONS: Answer each letter in the following problems. Show work when necessary. Problem 3 a) Determine the market price of a $750,000, five-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10%. b) Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. The lease requires 10 annual payments of $6,000 at the beginning of each year and provides the lessor (Eller) with an 8% return on its investment....
c) Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located two potential buyers: Buyer A, who is willing to pay $700,000 for the land now, and Buyer B, who is willing to make 20 annual payments of $110,000 each. Assuming that...
A company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, the company wishes to sell the land now. It has located two potential buyers: Buyer A, who is willing to pay $750,000 for the land now, and Buyer B, who is willing to make 23 annual payments of $87,000 each, with the...
CHAPTER 7 INSTRUCTIONS: Answer each letter in the following problems. Show work when necessary. Problem 3 a) Determine the market price of a $750,000, five-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10%. b) Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. The lease requires 10 annual payments of $6,000 at the beginning of each year and provides the lessor (Eller) with an 8% return on its investment....
Determine the market price of a $225,000, 10-year, 4% (pays interest semiannually) bond issue sold to yield an effective rate of 6%. (Round factor values to 5 decimal places, e.g. 1.25125 and final answer to 0 decimal places, e.g. 458,582.)
44. Calculate the issue price of a $1,000,000, 10%, 10-year bond that pays interest semiannually, assuming the market rate is 8%. Use the time value factors below to help you complete your answer (you may have a small rounding error): Periods Rate 4gi S2S 825 10% Present Value of $1 0.67556 0.61391 0.46319 0.38554 0.45639 0.37689 0.21455 0.14864 10 20 8.11090 7.72173 6.71008 6.14457 3.59033 12.46221 9.81815 8.51356 Present Value of Annuity 10 20 a. $1,137,862 b. $1,135,907 c. $1,000,000...
1. Consider a bond paying a coupon rate of 12.25% per year semiannually when the market interest rate is only 4.9% per half-year. The bond has six years until maturity. a. Find the bond's price today and twelve months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What is the total rate of return on the bond? (Do not round intermediate calculations. Round your answer to 2...