All Related Questions of Bond

Q: Presented below are a number of operational guidelines and practices that have

Presented below are a number of operational guidelines and practices that have developed over time. Instructions Select the assumption, principle, or constraint that most appropriately justifie...

Q: If the going concern assumption is not made in accounting, discuss

If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in the financial statements for the following items. (a) Land. (b) Unamortized bond premiu...

Q: Presented below are the captions of Faulk Company’s balance sheet.

Presented below are the captions of Faulk Company’s balance sheet. (a) Current assets. (f) Current liabilities. (b) Investments. (g) Noncurrent liabilities. (c) Property, plant, and equip...

Q: The bookkeeper for Geronimo Company has prepared the following balance sheet as

The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2014. The following additional information is provided. 1. Cash includes $1,200 in a petty cash fund...

Q: Presented below is the balance sheet of Sargent Corporation for the current

Presented below is the balance sheet of Sargent Corporation for the current year, 2014. The following information is presented. 1. The current assets section includes cash $150,000, accounts r...

Q: Each of the following items must be considered in preparing a statement

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as $...

Q: Presented below are three unrelated situations.(a) Dwayne

Presented below are three unrelated situations. (a) Dwayne Wade Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit...

Q: Laserwords Inc. is a book distributor that had been operating in

Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions h...

Q: Presented below are a number of independent situations.1.

Presented below are a number of independent situations. 1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas...

Q: Presented below is information related to Haselhof Inc. Balance per books

Presented below is information related to Haselhof Inc. Balance per books at October 31, $41,847.85; receipts $173,523.91; disbursements $164,893.54. Balance per bank statement November 30, $56,274....

Q: The following amortization and interest schedule reflects the issuance of 10-

The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2008, and the subsequent interest payments and charges. The company&rsquo...

Q: Will the amortization of Discount on Bonds Payable increase or decrease Bond

Will the amortization of Discount on Bonds Payable increase or decrease Bond Interest Expense? Explain.

Q: Venezuela Co. is building a new hockey arena at a cost

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a down payment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to compl...

Q: On April 1, 2014, Seminole Company sold 15,000

On April 1, 2014, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of...

Q: Presented on the next page are four independent situations.(

Presented on the next page are four independent situations. (a) On March 1, 2015, Wilke Co. issued at 103 plus accrued interest $4,000,000, 9% bonds. The bonds are dated January 1, 2015, and pay in...

Q: Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing

Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective-interest method. Furthermore, she cannot understand why GAAP requ...

Q: What is the “call” feature of a bond issue?

What is the “call” feature of a bond issue? How does the call feature affect the amortization of bond premium or discount?  

Q: On June 30, 2014, Mischa Auer Company issued $4

On June 30, 2014, Mischa Auer Company issued $4,000,000 face value of 13%, 20-year bonds at $4,300,920, a yield of 12%. Auer uses the effective-interest method to amortize bond premium or discount....

Q: Why would a company wish to reduce its bond indebtedness before its

Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a transaction.

Q: The following items are found in the financial statements.(

The following items are found in the financial statements. (a) Discount on bonds payable. (b) Interest expense (credit balance). (c) Unamortized bond issue costs. (d) Gain on repurchase of debt....

Q: Celine Dion Company issued $600,000 of 10%, 20

Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortiza...

Q: Assume the same information as in E14-4, except that

Assume the same information as in E14-4, except that Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. In E14-4 Celine Dion Company issued $600,0...

Q: Presented below are three independent situations. (a) CeCe

Presented below are three independent situations. (a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) Printing and engraving costs, $12,000; (2) lega...

Q: At December 31, 2014, Redmond Company has outstanding three long

At December 31, 2014, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2017. The second is a $6,000,000 bond issue which mat...

Q: On January 1, 2014, Aumont Company sold 12% bonds

On January 1, 2014, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2014, and matur...

Q: Wie Company has been operating for just 2 years, producing specialty

Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to finance its successful operations with investments from i...

Q: On January 1, 2014, Nichols Company issued for $1

On January 1, 2014, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were...

Q: (a) From what sources might a corporation obtain funds

(a) From what sources might a corporation obtain funds through long-term debt? (b) What is a bond indenture? What does it contain? (c) What is a mortgage?

Q: Under what conditions of bond issuance does a discount on bonds payable

Under what conditions of bond issuance does a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable arise?

Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. During the current year, the following transactions occurred. 1. The company issued t...

Q: Vargo Company has bonds payable outstanding in the amount of $500

Vargo Company has bonds payable outstanding in the amount of $500,000, and the Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 20 shares of preferred s...

Q: On May 1, 2014, Friendly Company issued 2,000

On May 1, 2014, Friendly Company issued 2,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of...

Q: Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company

Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzge...

Q: McIntyre Corporation issued 2,000 $1,000 bonds at

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warran...

Q: On January 1, 2014, Crocker Company issued 10-year

On January 1, 2014, Crocker Company issued 10-year, $2,000,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Crocker common stock. Crocker’s net income in 201...

Q: On June 1, 2012, Andre Company and Agassi Company merged

On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 800,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. O...

Q: Illiad Inc. has decided to raise additional capital by issuing $

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale...

Q: Aubrey Inc. issued $4,000,000 of 10

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond di...

Q: Eisler Corporation issued 2,000 $1,000 bonds at

Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market...

Q: Bridgewater Corp. offered holders of its 1,000 convertible bonds

Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. re...

Q: McIntyre Corporation issued 2,000 $1,000 bonds at

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants...

Q: Aubrey Inc. issued $4,000,000 of 10

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond disc...

Q: Vargo Company has bonds payable outstanding in the amount of $500

Vargo Company has bonds payable outstanding in the amount of $500,000, and the Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 20 shares of preferred sto...

Q: On January 1, 2013, when its $30 par value

On January 1, 2013, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the ho...

Q: The December 31, 2014, balance sheet of Kepler Corp.

The December 31, 2014, balance sheet of Kepler Corp. is as follows. On March 5, 2015, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30,...

Q: For the following investments identify whether they are: 1.

For the following investments identify whether they are: 1. Trading Securities 2. Available-for-Sale Securities 3. Held-to-Maturity Securities Each case is independent of the other. (a) A bond that wi...

Q: On January 1, 2014, Gottlieb Corporation issued $4,

On January 1, 2014, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be co...

Q: On January 1, 2013, Dagwood Company purchased at par 12

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of...

Q: Illiad Inc. has decided to raise additional capital by issuing $

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale o...

Q: On January 1, 2013, Hi and Lois Company purchased 12

On January 1, 2013, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2013, and...

Q: On September 1, 2014, Sands Company sold at 104 (

On September 1, 2014, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachab...

Q: Assume the same information as in E17-3 except that the

Assume the same information as in E17-3 except that the securities are classified as available-for-sale. The fair value of the bonds at December 31 of each year-end is as follows. Instructions (a) Pre...

Q: On May 1, 2014, Friendly Company issued 2,000

On May 1, 2014, Friendly Company issued 2,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of t...

Q: On January 1, 2013, Phantom Company acquires $200,

On January 1, 2013, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2015. Th...

Q: Roosevelt Company purchased 12% bonds, having a maturity value of

Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2014, and mature January 1, 2...

Q: Assume the same information as in IFRS17-12 except that Roosevelt

Assume the same information as in IFRS17-12 except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year-end is as follows. Instruction...

Q: Komissarov Company has a debt investment in the bonds issued by Keune

Komissarov Company has a debt investment in the bonds issued by Keune Inc. The bonds were purchased at par for $400,000 and, at the end of 2014, have a remaining life of 3 years with annual interest p...

Q: Your client, Cascade Company, is planning to invest some of

Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the shares of one of its suppliers, Teton Co. Teton’s shares trade on th...

Q: The Simon Corporation issued 10-year, $5,000

The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2014. The bonds have a par value of $1,000, with interest payable annually. The curr...

Q: You have completed the field work in connection with your audit of

You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2014. The balance sheet accounts at the beginning and end of the year are shown...

Q: Presented below is an amortization schedule related to Spangler Company’s 5-

Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660....

Q: Angela Corporation issues 2,000 convertible bonds at January 1,

Angela Corporation issues 2,000 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Int...

Q: Assume the same information in IFRS16-11, except that Angela

Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2014. In IFRS16-12 Angela Corporation issues 2,000 convertible bonds at January 1,...

Q: Norman Co., a fast-growing golf equipment company, uses

Norman Co., a fast-growing golf equipment company, uses GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of $400,000, and pay interest annuall...

Q: Following are selected statement of financial position accounts of Sander Bros.

Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2014 and 2013, and the increases or decreases in each account from 2013 to 2014. Also presented is...

Q: On January 1, 2014, Crocker Company issued 10-year

On January 1, 2014, Crocker Company issued 10-year, $2,000,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Crocker common stock. Crocker’s net income in 2014 was $3...

Q: Each of the following items must be considered in preparing a statement

Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2014. 1. Fixed assets that had cost $20,000 61⁄2 years befo...

Q: Presented below is information taken from a bond investment amortization schedule with

Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. Instructions (a) Indicate whethe...

Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. During the current year, the following transactions occurred. 1. The company issu...

Q: The information below pertains to Barkley Company for 2015. /

The information below pertains to Barkley Company for 2015. There were no changes during 2015 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury s...

Q: On June 1, 2012, Andre Company and Agassi Company merged

On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 800,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On A...

Q: Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company

Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgera...

Q: Following are a number of unrelated transactions for K-Town,

Following are a number of unrelated transactions for K-Town, some of which affect governmental activities at the government wide level. None of the transactions has been recorded yet. 1. The General F...

Q: Fleck County issued $5,500,000, 3 percent

Fleck County issued $5,500,000, 3 percent serial bonds, paying interest on January 1 and July 1. The bonds were sold on June 1 for 101. The county is required to use all accrued interest and premiums...

Q: In preparation for a proposed bond sale, the city manager of

In preparation for a proposed bond sale, the city manager of the City of Appleton requested that you prepare a statement of legal debt margin for the city as of December 31, 2010. You ascertain that t...

Q: As of December 31, 2010, New Town had $9

As of December 31, 2010, New Town had $9,500,000 in 4.5 percent serial bonds outstanding. Cash of $509,000 is the debt service fund’s only asset as of December 31, 2010, and there are no liabilities....

Q: Following are transaction data for a term bonds issue for the City

Following are transaction data for a term bonds issue for the City of Nevin. Prepare all necessary entries for these transactions in the city’s funds, and governmental activities journal at the govern...

Q: Transaction data related to the City of Chambers’s issuance of serial bonds

Transaction data related to the City of Chambers’s issuance of serial bonds to finance street and park improvements follow. Utilizing worksheets formatted as shown at the end of the...

Q: Following is the June 30, 2010, statement of net assets

Following is the June 30, 2010, statement of net assets for the City of Bay Lake Water Utility Fund. Required a. For fiscal year 2011, prepare general journal entries for the Water Utility Fund usin...

Q: Fawn community, located in the City of Deerville, voted to

Fawn community, located in the City of Deerville, voted to form a local improvement district to fund the construction of a new community center. The city agreed to construct the community center and a...

Q: Choose the best answer. 1. Which of the following

Choose the best answer. 1. Which of the following fund type(s) uses the accrual basis of accounting? a. Special revenue. b. Internal service. c. Pension trust. d. Both b and c. 2. Which of the followi...

Q: Choose the best answer. 1. Some governments have begun

Choose the best answer. 1. Some governments have begun to provide highly condensed financial information, budget summaries, and narrative descriptions, in addition to their traditional CAFR. This type...

Q: The City of Allenton has engaged you to examine its June 20

The City of Allenton has engaged you to examine its June 20, 2011, financial statements. You are the first CPA ever engaged by the city and you find that the city’s accounting staff...

Q: “Credit or bond analysts are interested only in the financial condition

“Credit or bond analysts are interested only in the financial condition of the government when determining bond ratings.” Do you agree or disagree with this statement? Explain.

Q: For the fiscal year 2007, the City and County of Denver

For the fiscal year 2007, the City and County of Denver, Colorado, had approximately $4.9 billion in bonded debt. You are a senior accountant in the controller’s office of the City and County of Denve...

Q: The City of Scottsdale, Arizona, provides the following report on

The City of Scottsdale, Arizona, provides the following report on the following page about its reserve policies on page 12 of its October 2007 financial trends booklet. Required a. Refer to Illustrat...

Q: In Erikus County, the Parks and Recreation Department constructed a library

In Erikus County, the Parks and Recreation Department constructed a library in one of the county’s high growth areas. The construction was funded by a number of sources. Below is selected information...

Q: Facts: Pursuant to its capital improvement plan, the City of

Facts: Pursuant to its capital improvement plan, the City of Kirkland decided to make certain improvements to Oak Ridge Street, a residential thoroughfare located in the northern part of the city. Spe...

Q: Financial Statement Impact of Incurring General Long-term Debt on Behalf

Financial Statement Impact of Incurring General Long-term Debt on Behalf of Other Governments. Facts: The Bates County government issued $2.5 million of tax-supported bonds to finance a major addition...

Q: During FY 2011, the voters of the Town of Dex approved

During FY 2011, the voters of the Town of Dex approved constructing and equipping a recreation center to be financed by tax-supported bonds in the amount of $3,000,000. During 2011, the following even...

Q: In 2011, Falts City began work to improve certain streets to

In 2011, Falts City began work to improve certain streets to be financed by a bond issue and supplemented by a federal grant. Estimated total cost of the project was $4,000,000; $2,500,000 was to come...

Q: Annabelle Benton, great-granddaughter of the founder of the Town

Annabelle Benton, great-granddaughter of the founder of the Town of Benton, made a cash contribution in the amount of $500,000 to be held as an endowment. To account for this endowment, the town has c...

Q: Make all necessary entries in the appropriate governmental fund general journal and

Make all necessary entries in the appropriate governmental fund general journal and the government-wide governmental activities general journal for each of the following transactions entered into by t...

Q: In the current fiscal year, St. George County issued $

In the current fiscal year, St. George County issued $3,000,000 in general obligation term bonds for 102. The county is required to use any accrued interest or premiums for servicing the debt issue. a...

Q: Examine the financial statements for Oak Valley Hospital for the years ended

Examine the financial statements for Oak Valley Hospital for the years ended December 31, 2010, and 2011. Required Prepare a short answer to address each of the following questions. a. Discuss the re...

Q: Choose the best answer. 1. The organization assigned primary

Choose the best answer. 1. The organization assigned primary responsibility for establishing accounting and financial reporting standards for health care organizations is the: a. American Institute of...

Q: Responding to a growing need for medical care as its population grew

Responding to a growing need for medical care as its population grew in the early 1900s, Suffolk County founded the Suffolk County Hospital in 1920, financing construction of the original hospital bui...

Q: The City of Topeka, Kansas, has received a Distinguished

The City of Topeka, Kansas, has received a Distinguished Budget Presentation Award for at least 12 years. An excerpt from the 2008 Budget is presented on the next page: Financial Policies, Guidelines,...

Q: Eagleview City prepares a quarterly forecast of cash flows for its water

Eagleview City prepares a quarterly forecast of cash flows for its water service department. Data for the upcoming quarter (in alphabetical order) measured on the cash basis are presented below. The...

Q: Your client, Harper Company, has a contractual commitment as a

Your client, Harper Company, has a contractual commitment as a part of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below that level on the balance sheet date, the entire bo...

Q: In the normal course of performing their responsibilities, auditors often conduct

In the normal course of performing their responsibilities, auditors often conduct audits or reviews of the following: 1. Federal income tax returns of an officer of the corporation to determine whethe...

Q: The following multiple choice questions concern interest-bearing liabilities. Choose the

The following multiple choice questions concern interest-bearing liabilities. Choose the best response. a. The audit program for long-term debt should include steps that require the (1) Verification...

Q: The following are frequently performed audit procedures for the verification of bonds

The following are frequently performed audit procedures for the verification of bonds payable issued in previous years: 1. Analyze the general ledger account for bonds payable, interest expense, and u...

Q: The following covenants are extracted from the indenture of a bond issue

The following covenants are extracted from the indenture of a bond issue. The indenture provides that failure to comply with its terms in any respect automatically makes the loan immediately due (the...

Q: New Business Ventures, Inc., has an outstanding perpetual bond with

New Business Ventures, Inc., has an outstanding perpetual bond with a 10 percent coupon rate that can be called in one year. The bond makes annual coupon payments. The call premium is set at $150 over...

Q: A company is contemplating a long-term bond issue. It

A company is contemplating a long-term bond issue. It is debating whether to include a call provision. What are the benefits to the company from including a call provision? What are the costs? How do...

Q: Fountain Corporation’s economists estimate that a good business environment and a bad

Fountain Corporation’s economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of Fountain must choos...

Q: An outstanding issue of Public Express Airlines debentures has a call provision

An outstanding issue of Public Express Airlines debentures has a call provision attached. The total principal value of the bonds is $250 million, and the bonds have an annual coupon rate of 9 percent....

Q: Janetta Corp. has an EBIT rate of $975,000

Janetta Corp. has an EBIT rate of $975,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent, and the corporate tax rate is 35 percent. Th...

Q: Charles River Associates is considering whether to call either of the two

Charles River Associates is considering whether to call either of the two perpetual bond issues the company currently has outstanding. If the bond is called, it will be refunded, that is, a new bond i...

Q: Consider the prices of the following three Treasury issues as of February

Consider the prices of the following three Treasury issues as of February 24, 2012: The bond in the middle is callable in February 2013. What is the implied value of the call feature? (there a way t...

Q: The following Treasury bond quote appeared in The Wall Street Journal on

The following Treasury bond quote appeared in The Wall Street Journal on May 11, 2004: Why would anyone buy this Treasury bond with a negative yield to maturity? How is this possible?

Q: What are the main features of a corporate bond that would be

What are the main features of a corporate bond that would be listed in the indenture?

Q: Shanken Corp. issued a 30-year, 6.2

Shanken Corp. issued a 30-year, 6.2 percent semiannual bond 7 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 35 percent. a. What is the pretax cost of...

Q: For the firm in the previous problem, suppose the book value

For the firm in the previous problem, suppose the book value of the debt issue is $70 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to...

Q: Suppose you bought a 6 percent coupon bond one year ago for

Suppose you bought a 6 percent coupon bond one year ago for $1,040. The bond sells for $1,063 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past...

Q: Filer Manufacturing has 8.3 million shares of common stock outstanding

Filer Manufacturing has 8.3 million shares of common stock outstanding. The current share price is $53, and the book value per share is $4. Filer Manufacturing also has two bond issues outstanding. Th...

Q: You purchased a zero coupon bond one year ago for $109

You purchased a zero coupon bond one year ago for $109.83. The market interest rate is now 9 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total return...

Q: Eckely, Inc., recently issued bonds with a conversion ratio of

Eckely, Inc., recently issued bonds with a conversion ratio of 17.5. If the stock price at the time of the bond issue was $48.53, what was the conversion premium?

Q: What happens to the price of a convertible bond if interest rates

What happens to the price of a convertible bond if interest rates increase?

Q: Hannon Home Products, Inc., recently issued $2 million worth

Hannon Home Products, Inc., recently issued $2 million worth of 8 percent convertible debentures. Each convertible bond has a face value of $1,000. Each convertible bond can be converted into 21.50 sh...

Q: If Wild Widgets, Inc., were an all-equity company

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .85. The company has a target debt–equity ratio of .40. The expected return on the market portfolio is 11 percent, and Treasu...

Q: An analyst has recently informed you that at the issuance of a

An analyst has recently informed you that at the issuance of a company’s convertible bonds, one of the two following sets of relationships existed: Assume the bonds are available for...

Q: An analyst has recently informed you that at the issuance of a company’s

An analyst has recently informed you that at the issuance of a company’s convertible bonds, one of the two following sets of relationships existed: Assume the bonds are available f...

Q: What is the duration of a bond with three years to maturity

What is the duration of a bond with three years to maturity and a coupon of 7 percent paid annually if the bond sells at par?

Q: Sportime Fitness Center, Inc., issued convertible bonds with a conversion

Sportime Fitness Center, Inc., issued convertible bonds with a conversion price of $51. The bonds are available for immediate conversion. The current price of the company’s common stock is $44 per sha...

Q: Explain why a put option on a bond is conceptually the same

Explain why a put option on a bond is conceptually the same as a call option on interest rates.

Q: What is the duration of a bond with four years to maturity

What is the duration of a bond with four years to maturity and a coupon of 8 percent paid annually if the bond sells at par?

Q: Bernanke Corp. has just issued a 30-year callable,

Bernanke Corp. has just issued a 30-year callable, convertible bond with a coupon rate of 6 percent annual coupon payments. The bond has a conversion price of $93. The company’s stock is selling for $...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $

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Q: You purchase a bond with an invoice price of $950.

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Q: Beta Corp. invested in a three-year, $ 100

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Q: On September 1, Louisa Ltd. purchased $80,000

On September 1, Louisa Ltd. purchased $80,000 of five-year, 9% bonds for $74,086, resulting in an effective (yield) rate of 11%. The bonds pay interest each March I and September I. Louisa Ltd. applie...

Q: Addison Manufacturing holds a large portfolio of debt securities as an investment

Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some securities have decreased in valu...

Q: On March 31, Ramesh Corp. invests in a $1

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Q: Erika and Kitty, who are twins, just received $30

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Q: Suppose 2-year Treasury bonds yield 4.5%, while

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Q: Assume that the real risk-free rate is 2% and

Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If the 1-year bond yield is 5% and a 2-year bond (of similar risk) yields 7%, what is the 1-year interest rate tha...

Q: A 5-year Treasury bond has a 5.2%

A 5-year Treasury bond has a 5.2% yield. A 10-year Treasury bond yields 6.4%, and a 10-year corporate bond yields 8.4%. The market expects that inflation will average 2.5% over the next 10 years (IP10...

Q: Suppose the inflation rate is expected to be 7% next year

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Q: Bond X is non callable and has 20 years to maturity,

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Q: Elliott Athletics is trying to determine its optimal capital structure, which

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Q: Pogue Industries Inc. has warrants outstanding that permit its holders to

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Q: Assume that you have just been hired as business manager of Campus

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Q: Suppose you won the lottery and had two options: (

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Q: Indicate whether each of the following actions will increase or decrease a

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Q: Last year Clark Company issued a 10-year, 12%

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Q: A Treasury bond that matures in 10 years has a yield of

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Q: A bond that pays interest forever and has no maturity is a

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Q: What is the implied nominal interest rate on a Treasury bond ($

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Q: A bond has a $1,000 par value, 10

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Q: a. What effect would each of the following events likely have

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Q: Heymann Company bonds have 4 years left to maturity. Interest is

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Q: Why is a call provision advantageous to a bond issuer? When

Why is a call provision advantageous to a bond issuer? When would the issuer be likely to initiate a refunding call?

Q: Clifford Clark is a recent retiree who is interested in investing some

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Q: In Chapter 7, we saw that if the market interest rate

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Q: An investor has two bonds in his portfolio that have a face

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Q: An 8% semiannual coupon bond matures in 5 years. The

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Q: Would the yield spread on a corporate bond over a Treasury bond

Would the yield spread on a corporate bond over a Treasury bond with the same maturity tend to become wider or narrower if the economy appeared to be heading toward a recession? Would the change in th...

Q: It is now January 1, 2009, and you are considering

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Q: A sinking fund can be set up in one of two ways

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Q: The values of outstanding bonds change whenever the going rate of interest

The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond pr...

Q: If interest rates rise after a bond issue, what will happen

If interest rates rise after a bond issue, what will happen to the bond’s price and YTM? Does the time to maturity affect the extent to which interest rate changes affect the bond’s price?

Q: If you buy a callable bond and interest rates decline, will

If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain.

Q: Robert Black and Carol Alvarez are vice presidents of Western Money Management

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Q: The British government has a consol bond outstanding paying £100 per

The British government has a consol bond outstanding paying £100 per year forever. Assume the current interest rate is 4% per year. a. What is the value of the bond immediately after a payment is made...

Q: You are thinking about buying a savings bond. The bond costs

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Q: You have an investment account that started with $1000 ten years

You have an investment account that started with $1000 ten years ago and which now has grown to $5000. a. What annual rate of return have you earned (you have made no additional contributions to the a...

Q: You have decided to buy a perpetual bond. The bond makes

You have decided to buy a perpetual bond. The bond makes one payment at the end of every year forever and has an interest rate of 5%. If the bond initially costs $1000, what is the payment every year?...

Q: Assume the current Treasury yield curve shows that the spot rates for

Assume the current Treasury yield curve shows that the spot rates for 6 months, 1 year, and 1 1/2 years are 1%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1000...

Q: Suppose a ten-year, $1000 bond with an 8

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Q: Suppose a five-year, $1000 bond with annual coupons

Suppose a five-year, $1000 bond with annual coupons has a price of $900 and a yield to maturity of 6%. What is the bond’s coupon rate?

Q: You have purchased a 10% coupon bond for $1040.

You have purchased a 10% coupon bond for $1040. What will happen to the bond’s price if market interest rates rise?

Q: Suppose a seven-year, $1000 bond with an 8

Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. a. Is this bond currently trading at a discount, at par, or at a premium? E...

Q: What was the price of this bond when it was issued?

What was the price of this bond when it was issued?

Q: Assuming the yield to maturity remains constant, what is the price

Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?

Q: Assuming the yield to maturity remains constant, what is the price

Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment?

Q: Suppose you purchase a ten-year bond with 6% annual

Suppose you purchase a ten-year bond with 6% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond’s yield to matur...

Q: What is the percentage change in the price of each bond if

What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%?

Q: Suppose you purchase a 30-year, zero-coupon bond

Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it. a. If the bond’s yield to maturity is 6% when you sell it, what is...

Q: The following table summarizes the yields to maturity on several one-

The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security……………………Yield (%) Treasury…………………… …………3.1 AAA corporate…………………………3.2 BBB corporate…………………………...

Q: Andrew Industries is contemplating issuing a 30-year bond with a

Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from Standard & Poor’s....

Q: HMK Enterprises would like to raise $10 million to invest in

HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). Th...

Q: A BBB-rated corporate bond has a yield to maturity of

A BBB-rated corporate bond has a yield to maturity of 8.2%. A U.S. Treasury security has a yield to maturity of 6.5%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semian...

Q: Consider a ten-year bond with a face value of $

Consider a ten-year bond with a face value of $1000 that has a coupon rate of 5.5%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a time...

Q: Assume that a bond will make payments every six months as shown

Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): a. What is the maturity of the bond (in years)? b. What is the coupon rate (in perc...

Q: For each of the following pairs of Treasury securities (each with

For each of the following pairs of Treasury securities (each with $1000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero coupon bond? b. A th...

Q: The yield to maturity of a $1000 bond with a 7

The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?

Q: The dollar cost of debt for Healy Consulting, a U.

The dollar cost of debt for Healy Consulting, a U.S. research firm, is 7.5%. The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen cos...

Q: You own a bond with a face value of $10,

You own a bond with a face value of $10,000 and a conversion ratio of 450. What is the conversion price?

Q: A $1000 face value bond has a conversion ratio of 40

A $1000 face value bond has a conversion ratio of 40. You estimate the transaction costs of conversion to be 3% of the face value of the bond. What price must the stock reach in order for you to conve...

Q: You are the CFO of RealNetworks on July 1, 2008.

You are the CFO of RealNetworks on July 1, 2008. The company’s stock price is $6.74 and its convertible debt (as shown in Table 15.7) is now callable. a. What is the value of the sha...

Q: General Electric has just issued a callable (at par) ten

General Electric has just issued a callable (at par) ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It...

Q: Boeing Corporation has just issued a callable (at par) three

Boeing Corporation has just issued a callable (at par) three-year, 5% coupon bond with semiannual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment...

Q: Under the assumption that KMS’s market share will increase by 0.

Under the assumption that KMS’s market share will increase by 0.25% per year, you determine that the plant will require an expansion in 2012. The expansion will cost $20 million. Assuming that the fin...

Q: Define the following terms that relate to a convertible bond: conversion

Define the following terms that relate to a convertible bond: conversion ratio, conversion value, and straight bond value.

Q: On June 30, 2018, Singleton Computers issued 6% stated

On June 30, 2018, Singleton Computers issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues...

Q: On the last day of its fiscal year ending December 31,

On the last day of its fiscal year ending December 31, 2018, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the compa...

Q: Johnson & Johnson is one of the world’s largest manufacturers of health

Johnson & Johnson is one of the world’s largest manufacturers of health care products. The company’s December 31, 2015, financial statements included the following information in the long-term debt di...

Q: Tanner-UNF Corporation acquired as a long-term investment $

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturi...

Q: Mills Corporation acquired as a long-term investment $240 million

Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. T...

Q: Tanner-UNF Corporation acquired as a long-term investment $

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanne...

Q: Mills Corporation acquired as a long-term investment $240 million

Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. T...

Q: Tanner-UNF Corporation acquired as a long-term investment $

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanne...

Q: Mills Corporation acquired as a long-term investment $240 million

Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. T...

Q: Amalgamated General Corporation is a consulting firm that also offers financial services

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected tr...

Q: Indicate (by letter) the way each of the investments listed

Indicate (by letter) the way each of the investments listed below most likely should be accounted for based on the information provided.

Q: On January 1, 2018, Ithaca Corp. purchases Cortland Inc

On January 1, 2018, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and De...

Q: Stewart Enterprises has the following investments, all purchased prior to 2018

Stewart Enterprises has the following investments, all purchased prior to 2018: 1. Bee Company 5% bonds, purchased at face value, with an amortized cost of $4,000,000, and classified as held to maturi...

Q: Tanner-UNF Corporation acquired as a long-term investment $

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturi...

Q: As a second-year financial analyst for A.J.

As a second-year financial analyst for A.J. Straub Investments, you are performing an initial analysis on Fizer Pharmaceuticals. A difficulty you’ve encountered in making comparisons with its chief ri...

Q: A fellow accountant has solicited your opinion regarding the classification of short

A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000 of...

Q: What information is contained in a bond indenture? What purpose does

What information is contained in a bond indenture? What purpose does it serve?

Q: On January 1, 2018, Gless Textiles issued $12 million

On January 1, 2018, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gles...

Q: Refer to the situation described in E 14–24.

Refer to the situation described in E 14–24. In E 14–24 On January 1, 2018, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 3...

Q: On January 1, 2018, Madison Products issued $40 million

On January 1, 2018, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99%...

Q: On August 1, 2018, Limbaugh Communications issued $30 million

On August 1, 2018, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31, 2038. Each $1,000 bond was issued with 20 detachable stock warrants, eac...

Q: On March 1, 2018, Brown-Ferring Corporation issued $

On March 1, 2018, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2018, for $99 million (plus accrued interest). The bonds mature on December 31, 2037, and pay interest se...

Q: Your investment department has researched possible investments in corporate debt securities.

Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2018. Pri...

Q: Determine the price of a $1 million bond issue under each

Determine the price of a $1 million bond issue under each of the following independent assumptions:

Q: Universal Foods sold the entire bond issue described in the previous exercise

Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications. Required: 1. Prepare the journal entry to record the purchase of the bonds by Wang Communications...

Q: How is the price determined for a bond (or bond issue

How is the price determined for a bond (or bond issue)?

Q: A zero-coupon bond pays no interest. Explain.

A zero-coupon bond pays no interest. Explain.

Q: On January 1, 2018, Darnell Window and Pane issued $

On January 1, 2018, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518. Required: 1. Prepare the journal entry to record the bond issue. 2. Determine the effectiv...

Q: Listed below are several terms and phrases associated with long-term

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.

Q: The following transactions relate to bond investments of Livermore Laboratories. The

The following transactions relate to bond investments of Livermore Laboratories. The company’s fiscal year ends on December 31. Livermore uses the straight-line method to determine interest. 2018 July...

Q: On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds

On January 1, 2018, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: Require...

Q: Bradley-Link’s December 31, 2018, balance sheet included the

Bradley-Link’s December 31, 2018, balance sheet included the following items: Long-Term Liabilities _________________________________ ($ in millions) 9.6% convertible bonds, callable at 101 beginning...

Q: First Bank has some question as to the tax-free nature

First Bank has some question as to the tax-free nature of $5 million of its municipal bond portfolio. This amount is excluded from First Bank’s taxable income of $55 million. Management has determined...

Q: Listed below are 10 causes of temporary differences. For each temporary

Listed below are 10 causes of temporary differences. For each temporary difference, indicate (by letter) whether it will create future deductible amounts (D) or future taxable amounts (T). Temporary D...

Q: Listed below are 10 causes of temporary differences. For each temporary

Listed below are 10 causes of temporary differences. For each temporary difference indicate the balance sheet account for which the situation creates a temporary difference. Temporary Difference _____...

Q: Refer to the financial statements and related disclosure notes of Microsoft Corporation

Refer to the financial statements and related disclosure notes of Microsoft Corporation (www.microsoft.com). Required: 1. What type of pension plan does Microsoft sponsor for its employees? Explain....

Q: The income statement and the cash flows from the operating activities section

The income statement and the cash flows from the operating activities section of the statement of cash flows are provided on the next page for Syntric Company. The merchandise inventory account balanc...

Q: Determine the amount of cash paid to bondholders for bond interest for

Determine the amount of cash paid to bondholders for bond interest for each of the six independent situations below. All dollars are in millions.

Q: For each of the four independent situations below, prepare a single

For each of the four independent situations below, prepare a single journal entry that summarizes the recording and payment of interest in order to determine the amount of cash paid for bond interest...

Q: The comparative balance sheets for 2018 and 2017 and the income statement

The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are given below for Arduous Company. Additional information from Arduous’s accounting records is pr...

Q: Following are selected balance sheet accounts of Del Conte Corp. at

Following are selected balance sheet accounts of Del Conte Corp. at December 31, 2018 and 2017, and the increases or decreases in each account from 2017 to 2018. Also presented is selected income stat...

Q: Refer to the data provided in the P 21–11 for

Refer to the data provided in the P 21–11 for Arduous Company. In P 21–11 The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are gi...

Q: Refer to the data provided in the P 21–11 for

Refer to the data provided in the P 21–11 for Arduous Company. In P 21–11 The comparative balance sheets for 2018 and 2017 and the income statement for 2018 are gi...

Q: The comparative balance sheets for 2018 and 2017 and the statement of

The comparative balance sheets for 2018 and 2017 and the statement of income for 2018 are given below for National Intercable Company. Additional information from NIC’s accounting re...

Q: The income statement and a schedule reconciling cash flows from operating activities

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Mike Roe Computers. Required: 1. Calculate each of the following amounts for...

Q: The income statement and a schedule reconciling cash flows from operating activities

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Macrosoft Corporation. Required: Prepare the cash flows from operating activ...

Q: Portions of the financial statements for Parnell Company are provided below.

Portions of the financial statements for Parnell Company are provided below. Required: 1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company...

Q: The following schedule relates the income statement with cash flows from operating

The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods, in the format illustrated by Illustration 21â€...

Q: Melinda invests $200,000 in a City of Heflin bond

Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething, Inc. that pays 8 percent...

Q: Hugh has the choice between investing in a City of Heflin bond

Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 perce...

Q: Fergie has the choice between investing in a State of New York

Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a...

Q: Dennis is currently considering investing in municipal bonds that earn 6 percent

Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Dennis’ tax rate is 20 percent, wh...

Q: Anne’s marginal income tax rate is 30 percent. She purchases a

Anne’s marginal income tax rate is 30 percent. She purchases a corporate bond for $10,000 and the maturity, or face value, of the bond is $10,000. If the bond pays 5 percent per year before taxes, wha...

Q: Cecil cashed in a Series EE savings bond with a redemption value

Cecil cashed in a Series EE savings bond with a redemption value of $14,000 and an original cost of $9,800. For each of the following independent scenarios, calculate the amount of interest Cecil will...

Q: During 2016, your clients, Mr. and Mrs. Howell

During 2016, your clients, Mr. and Mrs. Howell, owned the following investment assets: a. Go to the IRS web site (www.IRS.gov) and download the most current version of Form 8949 and Schedule D. Use Fo...

Q: Compare and contrast the tax treatment of interest from a Treasury bond

Compare and contrast the tax treatment of interest from a Treasury bond and qualified dividends from corporate stock.

Q: When should investors consider making an election to amortize market discount on

When should investors consider making an election to amortize market discount on a bond into income annually?

Q: Dana intends to invest $30,000 in either a Treasury

Dana intends to invest $30,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Assuming Dana’s federal...

Q: At the beginning of his current tax year David invests $12

At the beginning of his current tax year David invests $12,000 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 10 years. David receives $700 in interest ($350 ev...

Q: At the beginning of his current tax year, Eric bought a

At the beginning of his current tax year, Eric bought a corporate bond with a maturity value of $50,000 from the secondary market for $45,000. The bond has a stated annual interest rate of 5 percent p...

Q: In 2016, Nadia has $100,000 of regular taxable

In 2016, Nadia has $100,000 of regular taxable income. She itemizes her deductions as follows: real property taxes of $1,500, state income taxes of $2,000, and mortgage interest expense of $10,000 (no...

Q: XYZ Corporation has a deferred compensation plan under which it allows certain

XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. (For purposes of this problem, ignore payroll taxes i...

Q: XYZ is a calendar-year corporation that began business on January

XYZ is a calendar-year corporation that began business on January 1, 2016. For 2016, it reported the following information in its current year audited income statement. Notes with important tax inform...

Q: LeBron, Dennis, and Susan formed the Bar T LLC at

LeBron, Dennis, and Susan formed the Bar T LLC at the beginning of the current year. LeBron and Dennis each contributed $200,000 and Susan transferred several acres of agricultural land she had purcha...

Q: Aaron, Deanne, and Keon formed the Blue Bell General Partnership

Aaron, Deanne, and Keon formed the Blue Bell General Partnership at the beginning of the current year. Aaron and Deanne each contributed $110,000 and Keon transferred an acre of undeveloped land to th...

Q: The partnership agreement of the G&P general partnership states that

The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55...

Q: Georgio owns a 20 percent profits and capital interest in Rain Tree

Georgio owns a 20 percent profits and capital interest in Rain Tree LLC. For the current year, Rain Tree had the following revenues, expenses, gains, and losses: Sales revenue………………………………………………………………...

Q: Harrison Corporation reported pretax book income of $600,000.

Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest....

Q: Gary Holt LLP provides tax and legal services regarding tax-exempt

Gary Holt LLP provides tax and legal services regarding tax-exempt bond issues of state and local jurisdictions. Gary typically provides the services from his New York offices. However, for large issu...

Q: Happy Hippos (HH) is a manufacturer and retailer of New

Happy Hippos (HH) is a manufacturer and retailer of New England crafts headquartered in Camden, Maine. HH provides services has sales, employees, property, and commercial domicile as follows: Happy Hi...

Q: Bulldog Incorporated is a Georgia corporation. It properly included, deducted

Bulldog Incorporated is a Georgia corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: Use Georgia’s Corporate...

Q: Herger Corporation does business in California, Nevada, and Oregon and

Herger Corporation does business in California, Nevada, and Oregon and has nexus in these states as well. Herger’s California state tax base was $921,023 after making the required federal/state adjust...

Q: Classify the following as a transaction reported in a sub-component

Classify the following as a transaction reported in a sub-component of the current account, or the capital and financial accounts of the two countries involved: a. A U.S. food chain imports wine from...

Q: Identify the correct BOP account for each of the following transactions.

Identify the correct BOP account for each of the following transactions. a. A German-based pension fund buys U.S. government 30-year bonds for its investment portfolio. b. Scandinavian Airlines Syste...

Q: A taxpayer can invest $10,000 in a taxable 10

A taxpayer can invest $10,000 in a taxable 10-year bond that yields an annual pretax return of 6 percent or buy land (a capital asset) for $10,000 that is expected to increase at an annual pretax rate...

Q: On January 1, the first day of the fiscal year,

On January 1, the first day of the fiscal year, a company issues an $800,000, 4%, 10-year bond that pays semiannual interest of $16,000 ($800,000 × 4% × ½ year), receiving cash of $800,000. Journalize...

Q: On the first day of the fiscal year, a company issues

On the first day of the fiscal year, a company issues a $2,500,000, 4%, five-year bond that pays semiannual interest of $50,000 ($2,500,000 × 4% × ½), receiving cash of $2,390,599. Journalize the bond...

Q: Frey Co. is considering the following alternative financing plans:

Frey Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond intere...

Q: On the first day of the fiscal year, a company issues

On the first day of the fiscal year, a company issues a $3,000,000, 11%, five-year bond that pays semiannual interest of $165,000 ($3,000,000 × 11% × ½), receiving cash of $2,889,599. Journalize the b...

Q: Journalize the entries to record the following selected bond investment transactions for

Journalize the entries to record the following selected bond investment transactions for Hall Trust: a. Purchased for cash $240,000 of Medina City 6% bonds at 100 plus accrued interest of $3,600. b. R...

Q: Using the bond from Practice Exercise 14-3A, journalize the

Using the bond from Practice Exercise 14-3A, journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. In Practice Exercise 14-3A On the fi...

Q: Using the bond from Practice Exercise 14-3B, journalize the

Using the bond from Practice Exercise 14-3B, journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. In Practice Exercise 14-3B On the fi...

Q: On the first day of the fiscal year, a company issues

On the first day of the fiscal year, a company issues a $7,500,000, 8%, five-year bond that pays semiannual interest of $300,000 ($7,500,000 × 8% × ½), receiving cash of $7,811,873. Journalize the bon...

Q: On the first day of the fiscal year, a company issues

On the first day of the fiscal year, a company issues an $8,000,000, 11%, five-year bond that pays semiannual interest of $440,000 ($8,000,000 × 11% × ½), receiving cash of $8,308,869. Journalize the...

Q: Brower Co. is considering the following alternative financing plans:

Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond inte...

Q: Using the bond from Practice Exercise 14-5A, journalize the

Using the bond from Practice Exercise 14-5A, journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. In Practice Exercise 14-5A On the fir...

Q: Using the bond from Practice Exercise 14-5B, journalize the

Using the bond from Practice Exercise 14-5B, journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. In Practice Exercise 14-5B On the fir...

Q: On January 1, the first day of the fiscal year,

On January 1, the first day of the fiscal year, a company issues a $5,000,000, 6%, 10-year bond that pays semiannual interest of $150,000 ($5,000,000 × 6% × ½ year), receiving cash of $5,000,000. Jour...

Q: Journalize the entries to record the following selected bond investment transactions for

Journalize the entries to record the following selected bond investment transactions for Starks Products: a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,00...

Q: A $1,500,000 bond issue on which there

A $1,500,000 bond issue on which there is an unamortized discount of $70,100 is redeemed for $1,455,000. Journalize the redemption of the bonds.

Q: A $1,200,000 bond issue on which there

A $1,200,000 bond issue on which there is an unamortized premium of $63,956 is redeemed for $1,250,000. Journalize the redemption of the bonds.

Q: Soto Industries Inc. is an athletic footware company that began operations

Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fis...

Q: If you asked your broker to buy you a 12% bond

If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.

Q: Fleeson Company needs additional funds to purchase equipment for a new production

Fleeson Company needs additional funds to purchase equipment for a new production facility and is considering either issuing bonds payable or borrowing the money from a local bank in the form of an in...

Q: At the beginning of the current year, two bond issues (

At the beginning of the current year, two bond issues (Simmons Industries 7%, 20-year bonds and Hunter Corporation 8%, 10-year bonds) were outstanding. During the year, the Simmons Industries bonds we...

Q: On the first day of its fiscal year, Ebert Company issued

On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) in...

Q: Shunda Corporation wholesales parts to appliance manufacturers. On January 1,

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receivin...

Q: Ware Co. produces and sells motorcycle parts. On the first

Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $35,000,000 of five-year, 12% bonds at a market (effective) interest rate of 10%, with interest payab...

Q: Boyd Co. produces and sells aviation equipment. On the first

Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $80,000,000 of five-year, 9% bonds at a market (effective) interest rate of 12%, with interest paya...

Q: Domanico Co., which produces and sells biking equipment, is financed

Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 6% (issued at face amount) ……………………. $5,000,000 Preferred $2.00 stock, $100 par ……………………………………… 5,000,00...

Q: On the first day of its fiscal year, Chin Company issued

On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannual...

Q: Smiley Corporation wholesales repair products to equipment manufacturers. On April 1

Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley Corporation issued $20,000,000 of five-year, 9% bonds at a market (effective) interest rate of 8%,...

Q: Adele Corp., a wholesaler of music equipment, issued $22

Adele Corp., a wholesaler of music equipment, issued $22,000,000 of 20-year, 7% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year...

Q: Emil Corp. produces and sells wind-energy-driven engines

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $15,000,000 of 20-year, 9% callable bonds on May 1, 20Y1, at their face amount, with interest pay...

Q: The following transactions were completed by Winklevoss Inc., whose fiscal year

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, Year 1, at a market...

Q: On July 1, Year 1, Danzer Industries Inc. issued

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannua...

Q: Campbell, Inc. produces and sells outdoor equipment. On July

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell, Inc. issued $25,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $26,625,9...

Q: Three different plans for financing an $18,000,000

Three different plans for financing an $18,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount,...

Q: On July 1, Year 1, Danzer Industries Inc. issued

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannua...

Q: Campbell Inc. produces and sells outdoor equipment. On July 1

Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell Inc. issued $25,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $26,625,925...

Q: The following transactions were completed by Montague Inc., whose fiscal year

The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (e...

Q: On July 1, Year 1, Livingston Corporation, a wholesaler

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236...

Q: Rodgers Corporation produces and sells football equipment. On July 1,

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash...

Q: Three different plans for financing an $80,000,000

Three different plans for financing an $80,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount,...

Q: On July 1, Year 1, Livingston Corporation, a wholesaler

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236...

Q: Rodgers Corporation produces and sells football equipment. On July 1,

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash...

Q: Nordbock Inc. reports the following outstanding bond issue on its December

Nordbock Inc. reports the following outstanding bond issue on its December 31, 20Y1, balance sheet: $1,000,000, 7%, 10-year bonds that pay interest semiannually. The bonds have been outstanding for f...

Q: Xentec Inc. has decided to expand its operations to owning and

Xentec Inc. has decided to expand its operations to owning and operating golf courses. The following is an excerpt from a conversation between the chief executive officer, Peter Kilgallon, and the vic...

Q: You hold a 25% common stock interest in YouOwnIt, a

You hold a 25% common stock interest in YouOwnIt, a family-owned construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of $...

Q: CEG Capital Inc. is a large holding company that uses long

CEG Capital Inc. is a large holding company that uses long-term debt extensively to fund its operations. At December 31, the company reported total assets of $100 million, total debt of $55 million, a...

Q: In teams, select a public company that interests you. Obtain

In teams, select a public company that interests you. Obtain the company’s most recent annual report on Form 10-K. The Form 10-K is a company’s annually required filing with the Securities and Exchang...

Q: What causes a gain or loss on the sale of a bond

What causes a gain or loss on the sale of a bond investment?

Q: The following bond investment transactions were completed during a recent year by

The following bond investment transactions were completed during a recent year by Starks Company: Year 1 Jan. 31. Purchased 75, $1,000 government bonds at 100 plus accrued interest of $375 (one month)...

Q: Rekya Mart Inc. is a general merchandise retail company that began

Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Rekya Mart Inc., which has a fisca...

Q: The bond indenture for the 10-year, 9% debenture

The bond indenture for the 10-year, 9% debenture bonds issued January 2, 20Y5, required working capital of $100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year u...

Q: Insurance companies and pension plans hold large quantities of bond investments.

Insurance companies and pension plans hold large quantities of bond investments. Discount Insurance Corp. purchased $2,100,000 of 6.0% bonds of Soucy, Inc., for 116 on January 1, 2012. These bonds pay...

Q: Return to Short Exercise 8-7, the North Mark (

Return to Short Exercise 8-7, the North Mark (NM) investment in CitiSide bonds. Journalize the following on NM’s books: a. Purchase of the bond investment on June 30, 2012. NM expects to hold the inve...

Q: Assume that on September 30, 2012, Rentex, Inc.,

Assume that on September 30, 2012, Rentex, Inc., paid 95 for 7% bonds of Clarkson Corporation as a long-term held-to-maturity investment. The maturity value of the bonds will be $10,000 on September 3...

Q: Insurance companies and pension plans hold large quantities of bond investments.

Insurance companies and pension plans hold large quantities of bond investments. Brighton Insurance Corp. purchased $2,300,000 of 10.0% bonds of Scanlon, Inc., for 114 on January 1, 2012. These bonds...

Q: Cathy Talbert is the general manager of Barham Company, which provides

Cathy Talbert is the general manager of Barham Company, which provides data-management services for physicians in the Columbus, Ohio, area. Barham Company is having a rough year. Net income trails pro...

Q: Assume that on September 30, 2012, Protex, Inc.,

Assume that on September 30, 2012, Protex, Inc., paid 99 for 5.5% bonds of McPhee Corporation as a long-term held-to-maturity investment. The maturity value of the bonds will be $15,000 on September 3...

Q: North Mark (NM) owns vast amounts of corporate bonds.

North Mark (NM) owns vast amounts of corporate bonds. Suppose that on June 30, 2012, NM buys $800,000 of CitiSide bonds at a price of 102. The CitiSide bonds pay cash interest at the annual rate of 7%...

Q: This question consists of a number of items pertaining to an auditor’s

This question consists of a number of items pertaining to an auditor’s risk analysis for a company. Your task is to tell how each item affects overall audit risk—that is, the probability of issuing an...

Q: Respond to each of the following comments that you heard related to

Respond to each of the following comments that you heard related to the audit of Swan Company, a public entity. a. “We don’t need to consider the risk of material misstatement in our work because we r...

Q: A good fraud prevention program should address employees’ motivation to steal from

A good fraud prevention program should address employees’ motivation to steal from the company. The best method for doing this is to a. Establish employee assistance programs. b. Require a fidelity bo...

Q: You are in charge of the audit of the financial statements of

You are in charge of the audit of the financial statements of Demot Corporation for the year ended December 31. The corporation has a policy of investing its surplus funds in marketable securities. It...

Q: In connection with the audit of an issue of long-term

In connection with the audit of an issue of long-term bonds payable, the audit team should a. Determine whether bondholders are persons other than owners, directors, or officers of the company issuing...

Q: The following covenants are extracted from the indenture of a bond issue

The following covenants are extracted from the indenture of a bond issue. The indenture provides that failure to comply with its terms in any respect automatically advances the due date of the loan to...

Q: An audit team would most likely verify the interest earned on bond

An audit team would most likely verify the interest earned on bond investments by a. Vouching the receipt and deposit of interest checks. b. Confirming the bond interest rate with the issuer of the bo...

Q: In auditing for unrecorded long-term bonds payable, an audit

In auditing for unrecorded long-term bonds payable, an audit team most likely will a. Perform analytical procedures on the bond premium and discount accounts. b. Examine documentation of assets purcha...

Q: Suppose that Intel is considering building a new chipmaking factory.

Suppose that Intel is considering building a new chipmaking factory. a. Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel’s decision ab...

Q: For each of the following pairs, which bond would you expect

For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the U.S. government or a bond of an Eastern European government b. a bond that repays...

Q: Bond A pays $8,000 in 20 years. Bond

Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If t...

Q: Would each of the following transactions be included in net exports or

Would each of the following transactions be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or a decrease in that variable. a. An American buys a...

Q: Explain how each of the following developments would affect the supply of

Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. a. The Fed’s bond traders buy bonds...

Q: Suppose you observe the following effective annual zero-coupon bond yields

Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coup...

Q: Using the information in Table 8.9, what is the

Using the information in Table 8.9, what is the swap price of a 4-quarter oil swap with the first settlement occurring in the third quarter?

Q: Using the zero-coupon bond prices and oil forward prices in

Using the zero-coupon bond prices and oil forward prices in Table 8.9, what is the price of an 8-period swap for which two barrels of oil are delivered in even-numbered quarters and one barrel of oil...

Q: Verify that the 1-year yield volatility of the 4-

Verify that the 1-year yield volatility of the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is 0.14.

Q: What is the price of a 3-year interest rate cap

What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate? For the first three problems, use the following information:

Q: Suppose you observe the following 1-year implied forward rates:

Suppose you observe the following 1-year implied forward rates: 0.050000 (1- year), 0.034061 (2-year), 0.036012 (3-year), 0.024092 (4-year), 0.001470 (5-year). For each maturity year compute the zero-...

Q: Suppose you observe the following continuously compounded zero-coupon bond yields

Suppose you observe the following continuously compounded zero-coupon bond yields: 0.06766 (1-year), 0.05827 (2-year), 0.04879 (3-year), 0.04402 (4-year), 0.03922 (5-year). For each maturity year comp...

Q: You own a callable, convertible bond with a conversion ratio of

You own a callable, convertible bond with a conversion ratio of 24.25. The stock is currently selling for $48 per share. The issuer of the bond has announced a call at a call price of 110. What are yo...

Q: What are the implications for bond investors of the lack of transparency

What are the implications for bond investors of the lack of transparency in the bond market?

Q: A controversy erupted regarding bond-rating agencies when some agencies began

A controversy erupted regarding bond-rating agencies when some agencies began to provide unsolicited bond ratings. Why do you think this is controversial?

Q: A convertible bond has a conversion ratio of 24.6.

A convertible bond has a conversion ratio of 24.6. What is the conversion price?

Q: Which has greater interest rate risk, a 30-year Treasury

Which has greater interest rate risk, a 30-year Treasury bond or a 30-year BB corporate bond?

Q: A convertible bond has a conversion price of $61.50

A convertible bond has a conversion price of $61.50. What is the conversion ratio of the bond?

Q: We have seen that over long periods stock investments have tended to

We have seen that over long periods stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding their...

Q: What is wrong with the simple view that it is cheaper to

What is wrong with the simple view that it is cheaper to issue a bond with a warrant or a convertible feature because the required coupon is lower?

Q: Describe the general pattern of cash flows from a bond with a

Describe the general pattern of cash flows from a bond with a positive coupon rate.

Q: All other things held constant, how would the market price of

All other things held constant, how would the market price of a bond be affected if coupon interest payments were made semiannually instead of annually?

Q: How does a sinking fund function in the retirement of an outstanding

How does a sinking fund function in the retirement of an outstanding bond issue?

Q: Which ratios would a potential long-term bond investor be most

Which ratios would a potential long-term bond investor be most interested in? Explain. Answer Current and potential lenders of long-term funds, such as banks and bondholders, are interested in debt...

Q: If a convertible bond has a conversion ratio of 20, a

If a convertible bond has a conversion ratio of 20, a face value of $1,000, a coupon rate of 8 percent, and the market price for the company’s stock is $15 per share, what is the convertible bond’s co...

Q: How does a mortgage bond compare to a debenture?

How does a mortgage bond compare to a debenture?

Q: Long-term obligations usually are reclassified and reported as current liabilities

Long-term obligations usually are reclassified and reported as current liabilities when they become payable within the upcoming year (or operating cycle, if longer than a year). So, a 25-year bond iss...

Q: At the beginning of her current tax year, Angela purchased a

At the beginning of her current tax year, Angela purchased a zero-coupon corporate bond at original issue for $30,000 with a yield to maturity of 6 percent. Given that she will not actually receive...

Q: Which of the following items is not a reconciling item in the

Which of the following items is not a reconciling item in the income tax footnote? a. State income taxes b. Foreign income taxes c. Accrued pension liabilities d. Dividends received deduction e. Tax-e...

Q: Grand Corporation reported pretax book income of $600,000.

Grand Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest....

Q: Burcham Corporation reported pretax book income of $600,000.

Burcham Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest...

Q: Explain the meaning of each of the following terms as they relate

Explain the meaning of each of the following terms as they relate to a bond issue: (a) Convertible and (b) Callable.

Q: A corporation issues $26,000,000 of 9%

A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the foll...

Q: The following data relate to a $2,000,000

The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period: Bond carrying amount at beginning of period …………. $2,125,000 Interest paid during period …………………………...

Q: Bonds Payable has a balance of $5,000,000

Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?...

Q: In what section of the balance sheet would a bond payable be

In what section of the balance sheet would a bond payable be reported if (a) It is payable within one year and (b) It is payable beyond one year?

Q: The real risk-free rate, r*, is 2.

The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturit...

Q: An investor has two bonds in her portfolio, Bond C and

An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.6%. Bond C pays a 10% annual coupon, while Bon...

Q: An investor purchased the following 5 bonds. Each bond had a

An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and an 8% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell and...

Q: Is it true that the following equation can be used to find

Is it true that the following equation can be used to find the value of a bond with N years to maturity that pays interest once a year? Assume that the bond was issued several years ago.

Q: A bond with a face amount of $10,000 has

A bond with a face amount of $10,000 has a current price quote of 102.875. What is the bond’s price? a. $10,287.50 b. $10,102.88 c. $1,028,750 d. $1,028.75

Q: Amortizing the discount on bonds payable a. Is necessary only

Amortizing the discount on bonds payable a. Is necessary only if the bonds were issued at more than face value. b. Reduces the carrying value of the bond liability. c. Increases the recorded amount of...

Q: Is the payment of the face amount of a bond on its

Is the payment of the face amount of a bond on its maturity date regarded as an operating activity, an investing activity, or a financing activity? a. Financing activity b. Operating activity c. Inves...

Q: EKU, Inc., issued $560,000 of 6%,

EKU, Inc., issued $560,000 of 6%, 10-year bonds payable at a price of 80.5 on March 31, 2012. The market interest rate at the date of issuance was 9%, and the EKU bonds pay interest semiannually. 1. P...

Q: On January 31, Doherty Logistics, Inc., issued five-

On January 31, Doherty Logistics, Inc., issued five-year, 7% bonds payable with a face value of $8,000,000. The bonds were issued at 96 and pay interest on January 31 and July 31. Doherty Logistics, I...

Q: Team Sports Ltd. is authorized to issue $5,000

Team Sports Ltd. is authorized to issue $5,000,000 of 5%, 10-year bonds payable. On December 31, 2012, when the market interest rate is 6%, the company issues $4,000,000 of the bonds and receives cash...

Q: On June 30, 2012, the market interest rate is 8

On June 30, 2012, the market interest rate is 8%. First Place Sports Ltd. issues $4,000,000 of 9%, 20-year bonds payable at a price of 109.895. The bonds pay interest on June 30 and December 31. First...

Q: On January 31, Dogwood Logistics, Inc., issued 10-

On January 31, Dogwood Logistics, Inc., issued 10-year, 9% bonds payable with a face value of $9,000,000. The bonds were issued at 93 and pay interest on January 31 and July 31. Dogwood Logistics, Inc...

Q: Winner Sports Ltd. is authorized to issue $4,000

Winner Sports Ltd. is authorized to issue $4,000,000 of 12%, 10-year bonds payable. On December 31, 2012, when the market interest rate is 14%, the company issues $3,200,000 of the bonds and receives...

Q: On June 30, 2012, the market interest rate is 7

On June 30, 2012, the market interest rate is 7%. Victory Sports Ltd. issues $1,600,000 of 8%, 25-year bonds payable at a price of 111.75. The bonds pay interest on June 30 and December 31. Victory Sp...

Q: On February 28, 2012, Starfish Corp. issues 10%,

On February 28, 2012, Starfish Corp. issues 10%, fi ve-year bonds payable with a face value of $1,200,000. The bonds pay interest on February 28 and August 31. Starfish Corp. amortizes bonds by the st...

Q: Modern Brands recently completed a large debt refinancing. A debt refinancing

Modern Brands recently completed a large debt refinancing. A debt refinancing occurs when a company issues new bonds payable to retire old bonds. The company debits the old bonds payable and credits t...

Q: Midland Chemical Co. is negotiating a loan from Manhattan Bank and

Midland Chemical Co. is negotiating a loan from Manhattan Bank and Trust. The small chemical company needs to borrow $500,000. The bank offers a rate of 8 ¼ percent with a 20 percent compensating bala...

Q: Dickinson Company has $12 million in assets. Currently half of

Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 percent and half with common stock having a par value of $8. Ms. Smith, vice-presiden...

Q: Edsel Research Labs has $24 million in assets. Currently half

Edsel Research Labs has $24 million in assets. Currently half of these assets are financed with long-term debt at 8 percent and half with common stock having a par value of $10. Ms. Edsel, the vice-pr...

Q: Ryan Boot Company (review of Chapters 2 through 5) (

Ryan Boot Company (review of Chapters 2 through 5) (multiple LO’s from Chapters 2 through 5) *Fixed costs include (a) Lease expense of $200,000 and (b) Depreciation of $500,000. No...

Q: KatyDid Clothes has a $150 million (face value) 30

KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par that carries a coupon rate of 11 percent, paid semiannually. What would be Katydid’s before-tax compon...

Q: Oberon, Inc. has a $20 million (face value

Oberon, Inc. has a $20 million (face value) 10-year bond issue selling for 97 percent of par that pays an annual coupon of 8.25 percent. What would be Oberon’s before-tax component cost of debt?

Q: LilyMac Studios, a national chain of photography studios, is considering

LilyMac Studios, a national chain of photography studios, is considering opening up a chain of coffee shop/art galleries. While the existing operations of the firm have a beta of 1.17, the new chain i...

Q: LilyMac Studios, a national chain of photography studios, is considering

LilyMac Studios, a national chain of photography studios, is considering opening up a chain of coffee shop/art galleries. While the existing operations of the firm have a beta of 1.17, the new chain i...

Q: A corporate bond that you own at the beginning of the year

A corporate bond that you own at the beginning of the year is worth $975. During the year, it pays $35 in interest payments and ends the year valued at $965. What was your dollar return and percent re...

Q: A Treasury bond that you own at the beginning of the year

A Treasury bond that you own at the beginning of the year is worth $1,055. During the year, it pays $35 in interest payments and ends the year valued at $1,065. What was your dollar return and percent...

Q: Assess the risk-return relationship of the bond market (see

Assess the risk-return relationship of the bond market (see Tables 9.2 and 9.4) during each decade since 1950.

Q: Characterize the historical return, risk, and risk-return relationship

Characterize the historical return, risk, and risk-return relationship of the stock, bond and cash markets.

Q: A 3.85 percent coupon municipal bond has 18 years left

A 3.85 percent coupon municipal bond has 18 years left to maturity and has a price quote of 103.20. The bond can be called in eight years. The call premium is one year of coupon payments. Compute and...

Q: A corporate bond with a 6.5 percent coupon has 15

A corporate bond with a 6.5 percent coupon has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and t...

Q: Compute the price of a 3.8 percent coupon bond with

Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?...

Q: Compute the price of a 5.6 percent coupon bond with

Compute the price of a 5.6 percent coupon bond with ten years left to maturity and a market interest rate of 7.0 percent. (Assume interest payments are semiannual.) Is this a discount or premium bo...

Q: Calculate the price of a 5.2 percent coupon bond with

Calculate the price of a 5.2 percent coupon bond with 18 years left to maturity and a market interest rate of 4.6 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond...

Q: Calculate the price of a 5.7 percent coupon bond with

Calculate the price of a 5.7 percent coupon bond with 22 years left to maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond...

Q: A 5.65 percent coupon bond with 18 years left to

A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Q: A 4.30 percent coupon bond with 14 years left to

A 4.30 percent coupon bond with 14 years left to maturity is offered for sale at $943.22. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Q: A 6.75 percent coupon bond with 26 years left to

A 6.75 percent coupon bond with 26 years left to maturity can be called in six years. The call premium is one year of coupon payments. It is offered for sale at $1,135.25. What is the yield to call o...

Q: A 5.25 percent coupon bond with 14 years left to

A 5.25 percent coupon bond with 14 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,075.50. What is the yield to call...

Q: A client in the 39 percent marginal tax bracket is comparing a

A client in the 39 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar-risk corporate bond that offers a 6.45 percent yield. Which bond...

Q: A client in the 28 percent marginal tax bracket is comparing a

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar-risk corporate bond that offers a 6.45 percent yield. Which bond...

Q: Land’o’Toys is a profitable, medium-sized, retail company.

Land’o’Toys is a profitable, medium-sized, retail company. Several years ago, it issued a 6½ percent coupon bond, which pays interest semiannually. Th...

Q: Say that in June of this year, a company issued bonds

Say that in June of this year, a company issued bonds that are scheduled to mature in three years in June. The coupon rate is 5.75 percent and is paid semiannually. The bond issue was rated AAA. a. Bu...

Q: You have a portfolio of three bonds. The Long Bond will

You have a portfolio of three bonds. The Long Bond will mature in 19 years and has a 5.5% coupon rate. The Midterm Bond matures in 9 years and has a 6.6% coupon rate. The Short Bond matures in only 2...

Q: Describe the difference between a bond issued as a high-yield

Describe the difference between a bond issued as a high-yield bond and one that has become a “fallen angel.”

Q: Provide the definitions of a discount bond and a premium bond.

Provide the definitions of a discount bond and a premium bond. Give examples.

Q: Describe the differences in interest payments and bond price between a 5

Describe the differences in interest payments and bond price between a 5 percent coupon bond and a zero coupon bond.

Q: All else equal, which bond’s price is more affected by a

All else equal, which bond’s price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?

Q: All else equal, which bond’s price is more affected by a

All else equal, which bond’s price is more affected by a change in interest rates, a bond with a large coupon or a small coupon? Why?

Q: What is the yield to call and why is it important to

What is the yield to call and why is it important to a bond investor?

Q: Why does a Treasury bond offer a lower yield than a corporate

Why does a Treasury bond offer a lower yield than a corporate bond with the same time to maturity? Could a corporate bond with a different time to maturity offer a lower yield? Explain.

Q: Explain why high income and wealthy people are more likely to buy

Explain why high income and wealthy people are more likely to buy a municipal bond than a corporate bond.

Q: From discussions with your broker, you have determined that the expected

From discussions with your broker, you have determined that the expected inflation premium is 1.35 percent next year, 1.50 percent in year 2, 1.75 percent in year 3, and 2.00 percent in year 4 and bey...

Q: The Wall Street Journal reports that the current rate on 10-

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 7.25 percent, on 20-year Treasury bonds is 7.85 percent, and on a 20-year corporate bond issued by MHM Corp. is 8.75...

Q: The Wall Street Journal reports that the current rate on 8-

The Wall Street Journal reports that the current rate on 8-year Treasury bonds is 5.85 percent, on 15-year Treasury bonds is 6.25 percent, and on a 15-year corporate bond issued by MHM Corp. is 7.35 p...

Q: The Wall Street Journal reports that the current rate on 5-

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 1.85 percent and on 10-year Treasury bonds is 3.35 percent. Assume that the maturity risk premium is zero. Calculate t...

Q: The Wall Street Journal reports that the current rate on 10-

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.25 percent and on 20-year Treasury bonds is 4.50 percent. Assume that the maturity risk premium is zero. Calculate...

Q: Assume the current interest rate on a 1-year Treasury bond

Assume the current interest rate on a 1-year Treasury bond (1R1) is 4.50 percent, the current rate on a 2-year Treasury bond (1R2) is 5.25 percent, and the current rate on a 3-year Treasury bond (1R3)...

Q: Determine the interest payment for the following three bonds: 3 ½

Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in...

Q: Determine the interest payment for the following three bonds: 4 ½

Determine the interest payment for the following three bonds: 4 ½ percent coupon corporate bond (paid semiannually), 5.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15...

Q: A bond issued by Ford on May 15, 1997 is scheduled

A bond issued by Ford on May 15, 1997 is scheduled to mature on May 15, 2097. If today is November 16, 2014, what is this bond’s time to maturity?

Q: A bond issued by IBM on December 1, 1996 is scheduled

A bond issued by IBM on December 1, 1996 is scheduled to mature on December 1, 2096. If today is December 2, 2015, what is this bond’s time to maturity?

Q: A 6 percent corporate coupon bond is callable in five years for

A 6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issue...

Q: A 5.5 percent corporate coupon bond is callable in ten

A 5.5 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer...

Q: Consider the following three bond quotes; a Treasury note quoted at

Consider the following three bond quotes; a Treasury note quoted at 97.844, and a corporate bond quoted at 103.25, and a municipal bond quoted at 101.90. If the Treasury and corporate bonds have a par...

Q: Consider the following three bond quotes; a Treasury bond quoted at

Consider the following three bond quotes; a Treasury bond quoted at 106.438, a corporate bond quoted at 96.55, and a municipal bond quoted at 100.95. If the Treasury and corporate bonds have a par...

Q: Calculate the price of a zero coupon bond that matures in 20

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3.8 percent.

Q: Calculate the price of a zero coupon bond that matures in 15

Calculate the price of a zero coupon bond that matures in 15 years if the market interest rate is 5.75 percent.

Q: What’s the current yield of a 3.8 percent coupon corporate

What’s the current yield of a 3.8 percent coupon corporate bond quoted at a price of 102.08?

Q: What’s the current yield of a 5.2 percent coupon corporate

What’s the current yield of a 5.2 percent coupon corporate bond quoted at a price of 96.78?

Q: What’s the taxable equivalent yield on a municipal bond with a yield

What’s the taxable equivalent yield on a municipal bond with a yield to maturity of 3.5 percent for an investor in the 33 percent marginal tax bracket?

Q: What’s the taxable equivalent yield on a municipal bond with a yield

What’s the taxable equivalent yield on a municipal bond with a yield to maturity of 2.9 percent for an investor in the 28 percent marginal tax bracket?

Q: Rank from highest credit risk to lowest risk the following bonds,

Rank from highest credit risk to lowest risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with yield of 7.49 per...

Q: Rank the following bonds in order from lowest credit risk to highest

Rank the following bonds in order from lowest credit risk to highest risk, all with the same time to maturity, by their yield to maturity: Treasury bond with yield of 4.65 percent, United Airline bond...

Q: A corporate bond with a 6.75 percent coupon has ten

A corporate bond with a 6.75 percent coupon has ten years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm has recently become more financially stabl...

Q: A 5.75 percent coupon bond with ten years left to

A 5.75 percent coupon bond with ten years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What is the chan...

Q: A 6.5 percent coupon bond with 14 years left to

A 6.5 percent coupon bond with 14 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.8 percent. What is the change...

Q: Reconsider the 3.5 percent TIPS discussed in problem 7-

Reconsider the 3.5 percent TIPS discussed in problem 7-19. It was issued with CPI reference of 185.6. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was...

Q: Reconsider the 2.25 percent TIPS discussed in problem 7-

Reconsider the 2.25 percent TIPS discussed in problem 7-20. It was issued with CPI reference of 187.2. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was...

Q: A 6.25 percent coupon bond with 22 years left to

A 6.25 percent coupon bond with 22 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. If this occurs, w...

Q: A 7.5 percent coupon bond with 13 years left to

A 7.5 percent coupon bond with 13 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. If this occurs, w...

Q: A 2.50 percent coupon municipal bond has 12 years left

A 2.50 percent coupon municipal bond has 12 years left to maturity and has a price quote of 98.45. The bond can be called in four years. The call premium is one year of coupon payments. Compute and di...

Q: The Fitness Studio, Inc., with the help of its investment

The Fitness Studio, Inc., with the help of its investment bank, recently issued $43.125 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter’s spre...

Q: Harper’s Dog Pens, Inc., with the help of its investment

Harper’s Dog Pens, Inc., with the help of its investment bank recently issued $191.5 million of new debt. The offer price on the debt was $1,000 per bond and the underwriter’s spread was 5 percent of...

Q: DiPitro’s Paint and Wallpaper, Inc. needs to raise $1

DiPitro’s Paint and Wallpaper, Inc. needs to raise $1 million to finance plant expansion. In discussions with its investment bank, DiPitro’s learns that the bankers recommend a debt issue with gross p...

Q: Renee’s Boutique, Inc. needs to raise $58 million to

Renee’s Boutique, Inc. needs to raise $58 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,0...

Q: The following article appeared in the Wall Street Journal. Bond

The following article appeared in the Wall Street Journal. Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over new york—Commonwealth Edison Co.’s slow-selling ne...

Q: Seles Corporation’s charter authorized issuance of 100,000 shares of $

Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock. The following transactions involving the issuance of shares of...

Q: What is the “call” feature of a bond issue?

What is the “call” feature of a bond issue? How does the call feature affect the amortization of bond premium or discount?

Q: The following information is taken from the 2012 annual report of Bugant

The following information is taken from the 2012 annual report of Bugant, Inc. Bugant’s fiscal year ends December 31 of each year. Bugant’s December 31, 2012, balance sheet is as follows. Bugant, Inc....

Q: Wasserman Corporation issued 10-year bonds on January 1, 2013

Wasserman Corporation issued 10-year bonds on January 1, 2013. Costs associated with the bond issuance were $160,000. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the...

Q: On January 1, 2013, Henderson Corporation retired $500,

On January 1, 2013, Henderson Corporation retired $500,000 of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corp...

Q: The following items are found in the financial statements. (

The following items are found in the financial statements. (a) Discount on bonds payable (b) Interest expense (credit balance) (c) Unamortized bond issue costs (d) Gain on redemption of bonds (e) Mort...

Q: Foreman Company issued $800,000 of 10%, 20-

Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2013, at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the straight-line method of amortizatio...

Q: Assume the same information as in E14-4, except that

Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. In E14-4 Fo...

Q: Presented below are three independent situations. (a) Chinook

Presented below are three independent situations. (a) Chinook Corporation incurred the following costs in connection with the issuance of bonds: (1) Printing and engraving costs, $15,000; (2) Legal fe...

Q: On June 30, 2012, Mackes Company issued $5,

On June 30, 2012, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective-interest method to amortize bond premium or discount. The b...

Q: On January 1, 2012, Osborn Company sold 12% bonds

On January 1, 2012, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2012, and mature...

Q: Robinson, Inc. had outstanding $5,000,000

Robinson, Inc. had outstanding $5,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $7,000,000 of 10%, 15-year bonds (interest payable July 1 and Jan...

Q: At December 31, 2012, Redmond Company has outstanding three long

At December 31, 2012, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2015. The second is a $6,000,000 bond issue which matur...

Q: Wie Company has been operating for just 2 years, producing specialty

Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to fi nance its successful operations with investments from it...

Q: The following amortization and interest schedule reflects the issuance of 10-

The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2006, and the subsequent interest payments and charges. The companyâ&...

Q: Venezuela Co. is building a new hockey arena at a cost

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete...

Q: On April 1, 2012, Seminole Company sold 15,000

On April 1, 2012, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bo...

Q: Presented below are four independent situations. (a) On

Presented below are four independent situations. (a) On March 1, 2013, Wilke Co. issued at 103 plus accrued interest $4,000,000, 9% bonds. The bonds are dated January 1, 2013, and pay interest semiann...

Q: Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing

Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective-interest method. Furthermore, she cannot understand why GAAP requ...

Q: On January 1, 2013, Nichols Company issued for $1

On January 1, 2013, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were n...

Q: On March 1, 2013, Sealy Company sold its 5-

On March 1, 2013, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2013, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first i...

Q: Assume the same information in IFRS16-11, except that Angela

Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2012. In IFRS16-11 Angela Corporation issues 2,000 convertible bonds at January 1...

Q: The following article appeared in the Wall Street Journal. Bond

The following article appeared in the Wall Street Journal. Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over new york—Commonwealth Edison Co.’s slow-selling ne...

Q: The following information is taken from the 2012 annual report of Bugant

The following information is taken from the 2012 annual report of Bugant, Inc. Bugant’s fiscal year ends December 31 of each year. Bugant’s December 31, 2012, balance sheet is as follows. Bugant, Inc....

Q: Wie Company has been operating for just 2 years, producing specialty

Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to fi nance its successful operations with investments from it...

Q: What is the “call” feature of a bond issue?

What is the “call” feature of a bond issue? How does the call feature affect the amortization of bond premium or discount?

Q: Wasserman Corporation issued 10-year bonds on January 1, 2013

Wasserman Corporation issued 10-year bonds on January 1, 2013. Costs associated with the bond issuance were $160,000. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the...

Q: On January 1, 2013, Henderson Corporation retired $500,

On January 1, 2013, Henderson Corporation retired $500,000 of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corp...

Q: The following items are found in the financial statements. (

The following items are found in the financial statements. (a) Discount on bonds payable (b) Interest expense (credit balance) (c) Unamortized bond issue costs (d) Gain on redemption of bonds (e) Mort...

Q: Foreman Company issued $800,000 of 10%, 20-

Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2013, at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the straight-line method of amortizatio...

Q: Assume the same information as in E14-4, except that

Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. In E14-4 Fo...

Q: Presented below are three independent situations. (a) Chinook

Presented below are three independent situations. (a) Chinook Corporation incurred the following costs in connection with the issuance of bonds: (1) Printing and engraving costs, $15,000; (2) Legal fe...

Q: On June 30, 2012, Mackes Company issued $5,

On June 30, 2012, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective-interest method to amortize bond premium or discount. The b...

Q: On January 1, 2012, Osborn Company sold 12% bonds

On January 1, 2012, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2012, and mature...

Q: Robinson, Inc. had outstanding $5,000,000

Robinson, Inc. had outstanding $5,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $7,000,000 of 10%, 15-year bonds (interest payable July 1 and Jan...

Q: At December 31, 2012, Redmond Company has outstanding three long

At December 31, 2012, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2015. The second is a $6,000,000 bond issue which matur...

Q: The following amortization and interest schedule reflects the issuance of 10-

The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2006, and the subsequent interest payments and charges. The companyâ&...

Q: Venezuela Co. is building a new hockey arena at a cost

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete...

Q: On April 1, 2012, Seminole Company sold 15,000

On April 1, 2012, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bo...

Q: Presented below are four independent situations. (a) On

Presented below are four independent situations. (a) On March 1, 2013, Wilke Co. issued at 103 plus accrued interest $4,000,000, 9% bonds. The bonds are dated January 1, 2013, and pay interest semiann...

Q: Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing

Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective-interest method. Furthermore, she cannot understand why GAAP requ...

Q: On January 1, 2013, Nichols Company issued for $1

On January 1, 2013, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were n...

Q: On March 1, 2013, Sealy Company sold its 5-

On March 1, 2013, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2013, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first i...

Q: For the following investments, identify whether they are: 1

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Q: Your client, Cascade Company, is planning to invest some of

Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the stock of one of its suppliers, Teton Co. Teton’s shares trade on the...

Q: What purpose does the variety in bond features (types and characteristics

What purpose does the variety in bond features (types and characteristics) serve?

Q: On January 1, 2012, Jennings Company purchased at par 10

On January 1, 2012, Jennings Company purchased at par 10% bonds having a maturity value of $300,000. They are dated January 1, 2012, and mature January 1, 2017, with interest receivable December 31 of...

Q: On January 1, 2011, Roosevelt Company purchased 12% bonds

On January 1, 2011, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2011, and...

Q: Assume the same information as in E17-3 except that the

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Q: Presented below is information taken from a bond investment amortization schedule with

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Q: On January 1, 2012, Morgan Company acquires $300,

On January 1, 2012, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384. The interest is payable each December 31, and the bonds mature December 31, 2014. The investmen...

Q: Consider the bond investment by Lady Gaga in IFRS17-5.

Consider the bond investment by Lady Gaga in IFRS17-5. Discuss the accounting for this investment if Lady Gaga’s business model is to hold the investment to collect interest while outstanding and to r...

Q: On January 1, 2012, Roosevelt Company purchased 12% bonds

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Q: Assume the same information as in IFRS17-12 except that Roosevelt

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Q: Komissarov Company has a debt investment in the bonds issued by KeuneInc

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Q: Your client, Cascade Company, is planning to invest some of

Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the shares of one of its suppliers, Teton Co. Teton’s shares trade on th...

Q: Schuss Inc. issued $3,000,000 of 10

Schuss Inc. issued $3,000,000 of 10%, 10-year convertible bonds on June 1, 2012, at 98 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond disc...

Q: Gabel Company has bonds payable outstanding in the amount of $400

Gabel Company has bonds payable outstanding in the amount of $400,000, and the Premium on Bonds Payable account has a balance of $6,000. Each $1,000 bond is convertible into 20 shares of preferred sto...

Q: On January 1, 2012, when its $30 par value

On January 1, 2012, when its $30 par value common stock was selling for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the ho...

Q: The December 31, 2012, balance sheet of Osygus Corp.

The December 31, 2012, balance sheet of Osygus Corp. is as follows. On March 5, 2013, Osygus Corp. called all of the bonds as of April 30, for the principal plus interest through April 30. By April...

Q: Prior Inc. has decided to raise additional capital by issuing $

Prior Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of...

Q: On September 1, 2012, Jacob Company sold at 104 (

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Q: On May 1, 2012, Barkley Company issued 3,000

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Q: On June 1, 2011, Bluhm Company and Amanar Company merged

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Q: The Ottey Corporation issued 10-year, $4,000

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Q: On January 1, 2012, Lindsey Company issued 10-year

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Q: The stockholders’ equity section of Martino Inc. at the beginning of

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,000,000 shares, 300,000 shares issued and outstanding ………...

Q: Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company

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Q: The information below pertains to Barkley Company for 2013. Net

The information below pertains to Barkley Company for 2013. Net income for the year ……………………………………………………………………………………. $1,200,000 8% convertible bonds issued at par ($1,000 per bond); each bond is conv...

Q: On January 1, 2011, Garner issued 10-year,

On January 1, 2011, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares o...

Q: Seles Corporation’s charter authorized issuance of 100,000 shares of $

Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock. The following transactions involving the issuance of shares of...

Q: Angela Corporation issues 2,000 convertible bonds at January 1,

Angela Corporation issues 2,000 convertible bonds at January 1, 2011. The bonds have a three-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000....

Q: A Series EE U.S. government savings bond accrues 3

A Series EE U.S. government savings bond accrues 3.5% interest each year. The bond matures in three years, at which time the principal and interest will be paid. The bank will pay the taxpayer at a 3....

Q: Harper is considering three alternative investments of $10,000.

Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 25% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. T...

Q: Determine the taxpayer’s gross income for tax purposes in each of the

Determine the taxpayer’s gross income for tax purposes in each of the following situations: a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock wi...

Q: In 2017, Alva received dividends on her stocks as follows:

In 2017, Alva received dividends on her stocks as follows: Amur Corporation (a French corporation whose stock is traded on an established U.S. securities market)…………………………………………$60,0...

Q: Linda and Don are married and file a joint return. In

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Q: Tammy, a resident of Virginia, is considering purchasing a North

Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is...

Q: Starting in 2006, Chuck and Luane have been purchasing Series EE

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Q: Chee, single, age 40, had the following income and

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Q: Tonya, who lives in California, inherited a $100,

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Q: For each of the following independent transactions, calculate the recognized gain

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Q: What conditions are necessary to develop an efficient stock market with fair

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Q: Verify that the 4-year zero-coupon bond price generated

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Q: Repeat the previous problem, except that the time to maturity can

Repeat the previous problem, except that the time to maturity can be 1, 2, 3, 4, 5, 10, or 20 years. How does the bond yield change with time to maturity?

Q: Using the same information as the previous problem, suppose the interest

Using the same information as the previous problem, suppose the interest rate on the borrowing date is 7.5%. Determine the dollar settlement of the FRA assuming a. Settlement occurs on the date the lo...

Q: Suppose the firm issues a single zero-coupon bond with time

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Q: Using the zero-coupon bond prices and natural gas swap prices

Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what are gas forward prices for each of the 8 quarters?

Q: A firm has outstanding a bond with a 5-year maturity

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Q: Suppose there are 1-, 2-, and 3-year zero

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Q: Using the zero-coupon bond prices and natural gas swap prices

Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what is the implicit loan amount in each quarter in an 8-quarter natural gas swap?

Q: What are the 1-, 2-, 3-, 4-, and

What are the 1-, 2-, 3-, 4-, and 5-year zero-coupon bond prices implied by the two trees?

Q: Suppose the 7-year zero-coupon bond has a yield

Suppose the 7-year zero-coupon bond has a yield of 6% and yield volatility of 10% and the 10-year zero-coupon bond has a yield of 6.5% and yield volatility of 9.5%. The correlation between the 7-year...

Q: Using the information in Table 7.1, suppose you buy

Using the information in Table 7.1, suppose you buy a 3-year par coupon bond and hold it for 2 years, after which time you sell it. Assume that interest rates are certain not to change and that you re...

Q: What volatilities were used to construct each tree? (You computed

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Q: Using the same assumptions as in Problem 26.12, compute

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Q: As in the previous problem, consider holding a 3-year

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Q: Using the zero-coupon bond yields in Table 8.9

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Q: Using the information in Table 15.5, suppose we have

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Q: Using the assumptions of Example 16.4, and the stock

Using the assumptions of Example 16.4, and the stock price derived in Example 16.5 suppose you were to perform a “naive” valuation of the convertible as a risk free...

Q: Assume that the volatility of the S&P index is 30

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Q: Consider the implied forward rate between year 1 and year 2,

Consider the implied forward rate between year 1 and year 2, based on Table 7.1. a. Suppose that r0 (1, 2) = 6.8%. Show how buying the 2-year zero-coupon bond and borrowing at the 1-year rate and impl...

Q: Using the information in Table 15.5, suppose we have

Using the information in Table 15.5, suppose we have a bond that after 2 years pays one barrel of oil plus λ × max(0, S2 − 20.90), where S2 is the year-2 sp...

Q: Consider Panels B and D in Figure 16.4. Using

Consider Panels B and D in Figure 16.4. Using the information in each panel, compute the share price at each node for each bond issue.

Q: Using the information in Table 15.5, assume that the

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Q: Consider two zero-coupon bonds with 2 years and 10 years

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Q: Using the information in Table 7.1, a.

Using the information in Table 7.1, a. Compute the implied forward rate from time 1 to time 3. b. Compute the implied forward price of a par 2-year coupon bond that will be issued at time 1.

Q: Using the information about zero-coupon bond prices and oil forward

Using the information about zero-coupon bond prices and oil forward prices in Table 8.9, construct the set of swap prices for oil for 1 through 8 quarters.

Q: Using the information in Table 8.9, verify that it

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Q: Several years ago Brant, Inc., sold $900,000

Several years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9 percent ($81,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. A...

Q: Dane, Inc., owns Carlton Corporation. For the current year

Dane, Inc., owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $185,000 and the subsidiary reports $105,000. The parent had...

Q: Pesto Company possesses 80 percent of Salerno Company’s outstanding voting stock.

Pesto Company possesses 80 percent of Salerno Company’s outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2014, Pesto sold 9 percent bonds pay...

Q: Chesterfield Company holds cash of $60,000, inventory worth

Chesterfield Company holds cash of $60,000, inventory worth $110,000, and a building worth $140,000. Unfortunately, the company also has accounts payable of $190,000, a note payable of $90,000 (secure...

Q: Assume that the volatility of the S&P index is 30

Assume that the volatility of the S&P index is 30% and consider a bond with the payoff S2 + λ × [max (0, S2 − S0) – max (0, S2 − K)]. a. If λ = 1 and K = $1500, what is the price of the bond? b. Suppo...

Q: Compute Macaulay and modified durations for the following bonds: a

Compute Macaulay and modified durations for the following bonds: a. A 5-year bond paying annual coupons of 4.432% and selling at par. b. An 8-year bond paying semiannual coupons with a coupon rate of...

Q: Using the information in Table 8.9, what are the

Using the information in Table 8.9, what are the euro-denominated fixed rates for 4- and 8-quarter swaps?

Q: Consider the following two bonds which make semiannual coupon payments: a

Consider the following two bonds which make semiannual coupon payments: a 20- year bond with a 6% coupon and 20% yield, and a 30-year bond with a 6% coupon and a 20% yield. a. For each bond, compute t...

Q: Suppose the yield curve is flat at 8%. Consider 3-

Suppose the yield curve is flat at 8%. Consider 3- and 6-year zero-coupon bonds. You buy one 3-year bond and sell an appropriate quantity of the 6-year bond to duration hedge the position. Any additio...

Q: Consider a 5-year equity-linked note that pays one

Consider a 5-year equity-linked note that pays one share of XYZ at maturity. The price of XYZ today is $100, and XYZ is expected to pay its annual dividend of $1 at the end of this year, increasing by...

Q: An 8-year bond with 6% annual coupons and a

An 8-year bond with 6% annual coupons and a 5.004% yield sells for $106.44 with a Macaulay duration of 6.631864. A 9-year bond has 7% annual coupons with a 5.252% yield and sells for $112.29 with a Ma...

Q: A 6-year bond with a 4% coupon sells for

A 6-year bond with a 4% coupon sells for $102.46 with a 3.5384% yield. The conversion factor for the bond is 0.90046. An 8-year bond with 5.5% coupons sells for $113.564 with a conversion factor of 0....

Q: a. What is the 1-year bond forward price in

a. What is the 1-year bond forward price in year 1? b. What is the price of a call option that expires in 1 year, giving you the right to pay $0.9009 to buy a bond expiring in 1 year? c. What is the p...

Q: Suppose a 10-year zero-coupon bond with a face

Suppose a 10-year zero-coupon bond with a face value of $100 trades at $69.20205. a. What is the yield to maturity and modified duration of the zero-coupon bond? b. Calculate the approximate bond pric...

Q: A default-free zero-coupon bond costs $91 and

A default-free zero-coupon bond costs $91 and will pay $100 at maturity in 1 year. What is the effective annual interest rate? What is the payoff diagram for the bond? The profit diagram?

Q: Suppose the yield curve is flat at 6%. Consider a 4

Suppose the yield curve is flat at 6%. Consider a 4-year 5%-coupon bond and an 8-year 7%-coupon bond. All coupons are annual. a. What are the prices and durations of both bonds? b. Consider buying one...

Q: Suppose you observe the following zero-coupon bond prices per $

Suppose you observe the following zero-coupon bond prices per $1 of maturity payment: 0.96154 (1-year), 0.91573 (2-year), 0.87630 (3-year), 0.82270 (4-year), 0.77611 (5-year). For each maturity year c...

Q: Suppose you observe the following par coupon bond yields: 0.

Suppose you observe the following par coupon bond yields: 0.03000 (1-year), 0.03491 (2-year), 0.03974 (3-year), 0.04629 (4-year), 0.05174 (5-year). For each maturity year compute the zero-coupon bond...

Q: Using the information in the previous problem, find the price of

Using the information in the previous problem, find the price of a 5-year coupon bond that has a par payment of $1,000.00 and annual coupon payments of $60.00.

Q: Supposing the effective quarterly interest rate is 1.5%, what

Supposing the effective quarterly interest rate is 1.5%, what are the per-barrel swap prices for 4-quarter and 8-quarter oil swaps? (Use oil forward prices in Table 8.9.) What is the total cost of pre...

Q: Suppose the effective semiannual interest rate is 3%. a.

Suppose the effective semiannual interest rate is 3%. a. What is the price of a bond that pays one unit of the S&P index in 3 years? b. What semiannual dollar coupon is required if the bond is to sell...

Q: a. What is the 2-year forward price for a

a. What is the 2-year forward price for a 1-year bond? b. What is the price of a call option that expires in 2 years, giving you the right to pay $0.90 to buy a bond expiring in 1 year? c. What is the...

Q: Suppose the firm issues a single zero-coupon bond with maturity

Suppose the firm issues a single zero-coupon bond with maturity value $100. a. Compute the yield, probability of default, and expected loss given default for times to maturity of 1, 2, 3, 4, 5, 10, an...

Q: Consider the bonds in Example 7.8. What hedge ratio

Consider the bonds in Example 7.8. What hedge ratio would have exactly hedged the portfolio if interest rates had decreased by 25 basis points? Increased by 25 basis points? Repeat assuming a 50-basis...

Q: Suppose the firm issues a single zero-coupon bond.

Suppose the firm issues a single zero-coupon bond. a. Suppose the maturity value of the bond is $80. Compute the yield and default probability for times to maturity of 1, 2, 3, 4, 5, 10, and 20 years....

Q: Explain: “U.S. exports earn supplies of foreign

Explain: “U.S. exports earn supplies of foreign currencies that Americans can use to finance imports.” Indicate whether each of the following creates a demand for or a supply of European euros in fore...

Q: To fund its wars against Napoleon, the British government sold consol

To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities” because they would pay £3 every year in perpetuity (forever). If a citizen could pu...

Q: How is the issuance of a long-term bond reported on

How is the issuance of a long-term bond reported on fund financial statements? How is the issuanceof a long-term bond reported on government-wide financial statements?

Q: The following transactions relate to the General Fund of the city of

The following transactions relate to the General Fund of the city of Lost Angels for the year ending December 31, 2017. Prepare a statement of revenues, expenditures, and other changes in fund balance...

Q: Use the transactions in problem (47) but prepare a statement

Use the transactions in problem (47) but prepare a statement of net position for the government-wide financial statements. Assume that the general fund had $180,000 in cash on the first day of the yea...

Q: Indicate (i) how each of the following transactions impacts the

Indicate (i) how each of the following transactions impacts the fund balance of the general fund,and its classifications, for fund financial statements and (ii) what impact each transaction has on the...

Q: The City of Bagranoff holds $90,000 in cash that

The City of Bagranoff holds $90,000 in cash that will be used to make a bond payment when thedebt comes due early next year. The assistant treasurer had made that decision. However, justbefore the end...

Q: The board of commissioners of the City of Hartmoore adopted a general

The board of commissioners of the City of Hartmoore adopted a general fund budget for the yearending June 30, 2017, that included revenues of $1,000,000, bond proceeds of $400,000, appropriationsof $9...

Q: Cash of $90,000 is transferred from a city’s general

Cash of $90,000 is transferred from a city’s general fund to start construction on a police station. Thecity issues a bond at its $1.8 million face value. The police station is built for $1.89 million...

Q: The governmental funds of the City of Westchester report $445,

The governmental funds of the City of Westchester report $445,000 in assets and $140,000 inliabilities. The following are some of the assets reported by this government. ∙ Prepaid items—$7,000. ∙ Cash...

Q: The City of Dylan issues a 10-year bond payable of

The City of Dylan issues a 10-year bond payable of $1 million at face value on the first day of Year1. Debt issuance costs of $10,000 are paid on that day. For government-wide financial statements,how...

Q: The City of Pfeiffer starts the year of 2017 with the general

The City of Pfeiffer starts the year of 2017 with the general fund and an enterprise fund. The general fund has two activities: education and parks/recreation. For convenience, assume that the general...

Q: Use the information in problem 37 to prepare the 2017 fund financial

Use the information in problem 37 to prepare the 2017 fund financial statements for the governmental funds and the proprietary funds. A statement of cash flows is not required. Assume that “available”...

Q: The City of Dickens has a fiscal year ending December 31,

The City of Dickens has a fiscal year ending December 31, Year 5. The city council is viewed asthe highest level of decision-making authority for the government. For each of the following, indicatewhe...

Q: Suppose the interest rate is 10 percent. What is the value

Suppose the interest rate is 10 percent. What is the value of a coupon bond that pays $80 per year for each of the next five years and then makes a principal repayment of $1000 in the sixth year? Repe...

Q: A bond has two years to mature. It makes a coupon

A bond has two years to mature. It makes a coupon payment of $100 after one year and both a coupon payment of $100 and a principal repayment of $1000 after two years. The bond is selling for $966. Wha...

Q: You have noticed that bond prices have been rising over the past

You have noticed that bond prices have been rising over the past few months. All else equal, what does this suggest has been happening to interest rates? Explain.

Q: The Glover Scholastic Aid Foundation has received a €20 million global

The Glover Scholastic Aid Foundation has received a €20 million global governmentbond portfolio from a Greek donor. This bond portfolio will be held ineuros and managed separately fro...

Q: Suppose you are interested in investing in the stock markets of seven

Suppose you are interested in investing in the stock markets of seven countries—i.e., Australia, Canada, Germany, Japan, Switzerland, the United Kingdom,and the United Statesâ&...

Q: Assume today’s settlement price on a CME EUR futures contract is $

Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR.You have a short position in one contract. Your performance bond account currentlyhas a balance of $1,700. The next three d...

Q: Sara Lee Corp. is serving up a brand name and a

Sara Lee Corp. is serving up a brand name and a shorter maturity than other recentcorporate borrowers to entice buyers to its first-ever dollar Eurobonds. The U.S.maker of consumer products, from Sara...

Q: A five-year, 4 percent Euroyen bond sells at par

A five-year, 4 percent Euroyen bond sells at par. A comparable risk five-year,5.5 percent yen/dollar dual-currency bond pays $833.44 at maturity. It sells for¥110,000. What is the implied ¥/$ exchange...

Q: The Centralia Corporation is a U.S. manufacturer of small

The Centralia Corporation is a U.S. manufacturer of small kitchen electrical appliances.It has decided to construct a wholly owned manufacturing facility in Zaragoza, Spain, tomanufacture microwave ov...

Q: George Johnson is considering a possible six-month $100 million

George Johnson is considering a possible six-month $100 million LIBOR-based,floating-rate bank loan to fund a project at terms shown in the table below. Johnsonfears a possible rise in the LIBOR rate...

Q: The time from acceptance to maturity on a $1,000

The time from acceptance to maturity on a $1,000,000 banker’s acceptance is120 days. The importer’s bank’s acceptance commission is 1.75 percent and themarket rate for 120-day B/As is 5.75 percent. Wh...

Q: Since the early 1980s, foreign portfolio investors have purchased a significant

Since the early 1980s, foreign portfolio investors have purchased a significant portionof U.S. Treasury bond issues. Discuss the short-term and long-term effects offoreigners’ portfolio investment on...

Q: Do problem 1 again assuming you have a long position in the

Do problem 1 again assuming you have a long position in the futures contract. Data from Problem 1: Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR.You have a short positi...

Q: After studying Iris Hamson’s credit analysis, George Davies is consideringwhether he

After studying Iris Hamson’s credit analysis, George Davies is consideringwhether he can increase the holding period return on Yucatan Resort’s excess cashholdings (which are held in pesos) by investi...

Q: Dorchester, Ltd. is an old-line confectioner specializing in

Dorchester, Ltd. is an old-line confectioner specializing in high-quality chocolates.Through its facilities in the United Kingdom, Dorchester manufactures candies thatit sells throughout Western Europ...

Q: ARTL Company issued 3%, 10-year convertible bonds on January

ARTL Company issued 3%, 10-year convertible bonds on January 1, 2013, at their par value of $500 million. Each $1,000 bond is convertible into 40 shares of ARTL’s $1 par value common...

Q: Amber and Zack Wilson are pleased with the growth of their business

Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions i...

Q: Griffin purchased a bond on January 1, 2018, for $

Griffin purchased a bond on January 1, 2018, for $140,000. The bond has a face value of $140,000 and matures in 20 years. The bond pays interest on June 30 and December 31 at a 3% annual rate. Griffin...

Q: Advance & Co. owns vast amounts of corporate bonds. Suppose

Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 3...

Q: League Up & Co. owns vast amounts of corporate bonds.

League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of Coco Corp bonds at face value on January 2, 2018. The Coco Corp bonds pay interest at the annual rate of 8% on...

Q: Peyton Investments completed the following investment transactions during 2018:

Peyton Investments completed the following investment transactions during 2018: Requirements: 1. Journalize Peyton’s investment transactions. Explanations are not required. 2. Prep...

Q: Suppose Solomon Brothers purchases $500,000 of 6% annual

Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on Dece...

Q: Jet way Corporation generated excess cash and invested in securities as follows

Jet way Corporation generated excess cash and invested in securities as follows: Requirements: 1. Classify each of the investments made during 2018. (Assume the equity investments represent less tha...

Q: Suppose Hale and Sons purchases $800,000 of 3.

Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on D...

Q: Captain Transfer Corporation generated excess cash and invested in securities as follows

Captain Transfer Corporation generated excess cash and invested in securities as follows: Requirements: 1. Classify each of the investments made during 2018. (Assume the equity investments represent...

Q: On February 1, 2018, Bell Co. decides to invest

On February 1, 2018, Bell Co. decides to invest excess cash of $16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was $19,600. The...

Q: On June 1, 2018, Josh’s Restaurant decides to invest excess

On June 1, 2018, Josh’s Restaurant decides to invest excess cash of $54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year- end, December 31, 2018, Jackrabbit’s b...

Q: On June 30, Daughtry Limited issues 8%, 20-year

On June 30, Daughtry Limited issues 8%, 20-year bonds payable with a face value of $130,000. The bonds are issued at 86 and pay interest on June 30 and December 31. Requirements: 1. Journalize the is...

Q: Anderson Company issued $70,000 of 10-year,

Anderson Company issued $70,000 of 10-year, 9% bonds payable on January 1, 2018. Anderson Company pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line amortiz...

Q: On January 1, 2018, Roberts Unlimited issues 8%, 20

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and December 31. Requirements: 1. Journal...

Q: Pediatric Dispensary borrowed $390,000 on January 2, 2018

Pediatric Dispensary borrowed $390,000 on January 2, 2018, by issuing a 15% serial bond payable that must be paid in three equal annual installments plus interest for the year. The first payment of pr...

Q: Journalize issuance of the bond and the first semiannual interest payment under

Journalize issuance of the bond and the first semiannual interest payment under each of the following three assumptions. The company amortizes bond premium and discount by the effective-interest amort...

Q: Bill and Edna had been married two years and had just reached

Bill and Edna had been married two years and had just reached the point where they had enough savings to start investing. Bill’s uncle Dave told them that he had recently inherited some very rare rail...

Q: On January 1, 2018, Nurses Credit Union (NCU)

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face value of $600,000. The bonds pay interest on June 30 and December 31. Requirements: 1. If the market interest...

Q: On January 1, 2018, Educators Credit Union (ECU)

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 10...

Q: Brad Nelson, Inc. issued $600,000 of 7

Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018. The market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually. Requirements: 1....

Q: Relaxation, Inc. is authorized to issue 7%, 10-

Relaxation, Inc. is authorized to issue 7%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 12%, the company issues $300,000 of the bonds. The bonds pay interest semiannual...

Q: On January 1, 2018, Doctors Credit Union (DCU)

On January 1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bonds payable with face value of $200,000. The bonds pay interest on June 30 and December 31. Requirements: 1. If the market interest...

Q: On January 1, 2018, Electricians Credit Union (ECU)

On January 1, 2018, Electricians Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $400,000. The bonds pay interest on June 30 and December 31. The issue price of the bonds is 104...

Q: Ari Goldstein issued $300,000 of 11%, five-

Ari Goldstein issued $300,000 of 11%, five-year bonds payable on January 1, 2018. The market interest rate at the date of issuance was 10%, and the bonds pay interest semiannually. Requirements: 1. H...

Q: Sleep Well, Inc. is authorized to issue 9%, 10

Sleep Well, Inc. is authorized to issue 9%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 10%, the company issues $500,000 of the bonds. The bonds pay interest semiannual...

Q: What is a bond payable?

What is a bond payable?

Q: When a bond is issued, what is its present value?

When a bond is issued, what is its present value?

Q: In regard to a bond discount or premium, what is the

In regard to a bond discount or premium, what is the straight-line amortization method?

Q: In regard to a bond discount or premium, what is the

In regard to a bond discount or premium, what is the effective-interest amortization method?

Q: Power Company issued a $1,000,000, 5

Power Company issued a $1,000,000, 5%, 5-year bond payable at face value on January 1, 2018. Interest is paid semiannually on January 1 and July 1. Requirements: 1. Journalize the issuance of the bon...

Q: Bond prices depend on the market rate of interest, stated rate

Bond prices depend on the market rate of interest, stated rate of interest, and time. Requirements: 1. Compute the price of the following 8% bonds of Country Telecom. a. $100,000 issued at 75.25 b. $...

Q: Owen Company issued a $110,000, 11%, 10

Owen Company issued a $110,000, 11%, 10-year bond payable at 94 on January 1, 2018. Interest is paid semiannually on January 1 and July 1. Requirements: 1. Journalize the issuance of the bond payabl...

Q: Wilkes Mutual Insurance Company issued a $100,000, 5

Wilkes Mutual Insurance Company issued a $100,000, 5%, 10-year bond payable at 111 on January 1, 2018. Interest is paid semiannually on January 1 and July 1. Requirements: 1. Journalize the issuance...

Q: McQueen Company issued a $100,000, 7.5

McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize the following transactions for McQueen Company, and include an explanation for each entry: a. Issuance of the bond payable at...

Q: Canyon Canoe Company is considering raising additional capital for further expansion.

Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Addi...

Q: John and Mary have two small children and are looking for ways

John and Mary have two small children and are looking for ways to help fund the children’s college education. They have heard that Series EE bonds are a tax-favored way of saving and have requested yo...

Q: a. Is the interest received from government obligations taxable? Explain

a. Is the interest received from government obligations taxable? Explain. b. What impact does the fact that some bond interest is tax exempt have on interest rates? c. Is an investor always better o...

Q: a. Is the interest received from government obligations taxable? Explain

a. Is the interest received from government obligations taxable? Explain. b. What impact does the fact that some bond interest is tax exempt have on interest rates? c. Is an investor always better o...

Q: Ken and Lynn paid $5,000 to purchase Series EE

Ken and Lynn paid $5,000 to purchase Series EE bonds in the name of their 11-year-old son. The son has no other income, and they are in the 28% tax bracket. The taxable interest this year will be $400...

Q: In 2013, Harry and Mary purchased Series EE bonds, and

In 2013, Harry and Mary purchased Series EE bonds, and in 2017 redeemed the bonds, receiving $500 of interest and $1,500 of principal. Their income from other sources totaled $30,000. They paid $2,200...

Q: On January 1, 2016, Sean purchased an 8%, $

On January 1, 2016, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2016, and matures on January 1, 2021. Interest is paid semiannually, and the effective...

Q: Today, Juanita purchases a 15-year, 7% bond

Today, Juanita purchases a 15-year, 7% bond of the Sunflower Corporation issued four years ago at par. She purchases the bond as an investment at a discount from the par value. If she sells the bonds...

Q: Calvin, whose tax rate is 35% is considering two alternative

Calvin, whose tax rate is 35% is considering two alternative investments on January 1, 20Y1. He can purchase $100,000 of 10% bonds due in five years or purchase $100,000 of Hobbes, Inc. common stock....

Q: Latesha, a single taxpayer, had the following income and deductions

Latesha, a single taxpayer, had the following income and deductions for the tax year 2017: INCOME: Salary$ 80,000 Business Income25,000 Interest income from bonds10,000 Tax-exempt bond interest5,000...

Q: JCPenney Company was one of the first companies to issue zero coupon

JCPenney Company was one of the first companies to issue zero coupon bonds. It issued bonds with a face (maturity) value of $400 million due eight years after issuance. When the bonds were sold to the...

Q: You are a personal financial planner working with a married couple in

You are a personal financial planner working with a married couple in their early 40s who have decided to invest $100,000 in corporate bonds. You have found two bonds that you think will interest your...

Q: On January 1, 2011, Victor Corporation sold a $1

On January 1, 2011, Victor Corporation sold a $1,400,000, 8 percent bond issue (6 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in f...

Q: On January 1, 2011, Frog Corporation sold a $2

On January 1, 2011, Frog Corporation sold a $2,000,000, 10 percent bond issue (8.5 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in...

Q: Using data from the previous exercise, complete each of the requirements

Using data from the previous exercise, complete each of the requirements in Exercise 10-17 without using a premium account. Data from Exercise 10-17 On January 1, 2011, Frog Corporation sold a $2,000...

Q: Houston Company issued a $10,000, three-year

Houston Company issued a $10,000, three-year, 5 percent bond on January 1, 2011. The bond interest ispaid each December 31. The bond was sold to yield 4 percent. Required: 1. Complete a bond amortiza...

Q: On January 1, 2011, Bidden Corporation sold and issued $

On January 1, 2011, Bidden Corporation sold and issued $100,000, five-year, 10 percent bonds. The bond interest is payable each June 30 and December 31. Assume three separate and independent selling s...

Q: Denver Corporation sold a $300,000, 6 percent bond

Denver Corporation sold a $300,000, 6 percent bond issue on January 1, 2011, at a market rate of 3 percent. The bonds were dated January 1, 2011, with interest to be paid each December 31; they mature...

Q: Gateway Company issued a $1 million bond that matures in 10

Gateway Company issued a $1 million bond that matures in 10 years. The bond has a 10 percent stated rate of interest. When the bond was issued, the market rate was 8 percent. The bond pays interest ea...

Q: Several years ago, Walters Company issued a $600,000

Several years ago, Walters Company issued a $600,000 bond at par value. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 percent. Record the ret...

Q: On January 1, 2011, Park Corporation sold a $600

On January 1, 2011, Park Corporation sold a $600,000, 7.5 percent bond issue (8.5 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in f...

Q: Using data from the previous exercise, complete each of the requirements

Using data from the previous exercise, complete each of the requirements in Exercise 10-9 without using a discount account. Exercise 10-9 On January 1, 2011, Park Corporation sold a $600,000, 7.5 per...

Q: Santa Corporation sold a $1,000 bond on January 1

Santa Corporation sold a $1,000 bond on January 1, 2011. The bond specified an interest rate of 6 percent payable at the end of each year. The bond matures at the end of 2013. It was sold at a market...

Q: GMAC Corporation issued a $100,000 bond that matures in

GMAC Corporation issued a $100,000 bond that matures in five years. The bond has a stated interest rate of 6 percent. On January 1, 2011, when the bond was issued, the market rate was 8 percent. The b...

Q: On January 1, 2011, Clearwater Corporation sold a $750

On January 1, 2011, Clearwater Corporation sold a $750,000, 8 percent bond issue (9 percent market rate). The bonds were dated January 1, 2011, pay interest each December 31, and mature in 10 years....

Q: 1. The ____________ is the amount (a) payable at

1. The ____________ is the amount (a) payable at the maturity of the bond and (b) on which the periodiccash interest payments are computed. 2. ____________ is another name for bond principal, or the m...

Q: A number of events over the life of a bond have effects

A number of events over the life of a bond have effects that are reported on the statement of cash flows. For each of the following events, determine whether the event affects the statement of cash fl...

Q: If a company issues a bond at a discount, will interest

If a company issues a bond at a discount, will interest expense each period be more or less than the cash payment for interest? If another company issues a bond at a premium, will interest expense be...

Q: If interest rates fell after the issuance of a bond and the

If interest rates fell after the issuance of a bond and the company decided to retire the debt, would you expect the company to report a gain or loss on debt retirement? Describe the financial stateme...

Q: For each of the following items, specify whether the information would

For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all. 1....

Q: Which of the following is false when a bond is issued at

Which of the following is false when a bond is issued at a premium? a. The bond will issue for an amount above its par value. b. Bonds payable will be credited for the par value of the bond. c. Intere...

Q: A bond with a face value of $100,000 was

A bond with a face value of $100,000 was issued for $93,500 on January 1, 2011. The stated rate of interest was 8 percent and the market rate of interest was 10 percent when the bond was sold. Interes...

Q: To determine whether a bond will be sold at a premium,

To determine whether a bond will be sold at a premium, discount, or at face value, one must know which of the following pairs of information? a. Par value and the coupon rate on the date the bond was...

Q: When using the effective-interest method of amortization, interest expense

When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by the a. Par value of the bonds. b. Coupon rate of interest stated in the bond...

Q: A bond with a face value of $100,000 is

A bond with a face value of $100,000 is sold on January 1. The bond has a stated interest rate of 10 percent and matures in 10 years. When the bond was issued the market rate of interest was 10 percen...

Q: Annual interest expense for a single bond issue continues to increase over

Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this? a. The market rate of interest has increased since the bonds wer...

Q: A bond with a maturity value of $100,000 has

A bond with a maturity value of $100,000 has a stated interest rate of 8 percent. The bond matures in 10 years. When the bond is issued, the market rate of interest is 10 percent. What amount should b...

Q: Electrolux Corporation manufactures electrical test equipment. The company’s board of directors

Electrolux Corporation manufactures electrical test equipment. The company’s board of directors authorizeda bond issue on January 1, 2011, with the following terms: Maturity (par) value: $800,000 Inte...

Q: MBTA Corporation issued bonds and received cash in full for the issue

MBTA Corporation issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2011. The stated interest rate was payable at the end of each year. The bonds...

Q: DirectTV is the largest provider of direct-to-home digital

DirectTV is the largest provider of direct-to-home digital television services and the second largest provider in the multichannel video programming distribution industry in the United States. It prov...

Q: Barnett Corporation sold a $500,000, 7 percent bond

Barnett Corporation sold a $500,000, 7 percent bond issue on January 1, 2011. The bonds pay interest each June 30 and December 31 and mature 10 years from January 1, 2011. For comparative study and an...

Q: Akron Corporation, whose annual accounting period ends on December 31,

Akron Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2011 Maturity amount and date: $100,000 due in 10 years Interest: 10 percen...

Q: On January 1, 2011, Cunningham Corporation issued $200,

On January 1, 2011, Cunningham Corporation issued $200,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 6 percent and pay interest on December 31. When the bonds were sol...

Q: Determine whether each of the following would be reported in the financing

Determine whether each of the following would be reported in the financing activities section of the statement of cash flows and, if so, specify whether it is a cash inflow or outflow. 1. Sale of bond...

Q: Differentiate among the stated and effective rates of interest on a bond

Differentiate among the stated and effective rates of interest on a bond (a) sold at par, (b) sold at a discount, and (c) sold at a premium.

Q: What is the book value of a bond payable?

What is the book value of a bond payable?

Q: Explain the basic difference between the straight-line and the effective

Explain the basic difference between the straight-line and the effective-interest methods of amortizing a bond discount or premium. Explain when each method should or may be used.

Q: What is the difference between a bond indenture and a bond certificate

What is the difference between a bond indenture and a bond certificate?

Q: Refer to the financial statements of American Eagle (Appendix B)

Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Most companies report some amount...

Q: Cam and Anna met during their freshman year of college as they

Cam and Anna met during their freshman year of college as they were standing in line to buy tickets to a concert. While waiting in line, the two shared various aspects of their lives. Cam, whose fathe...

Q: Valentina, who is single, itemizes deductions and has no dependents

Valentina, who is single, itemizes deductions and has no dependents. In the current year, she earned $6,000 of municipal bond interest income, and she paid state income taxes of $5,600, mortgage inter...

Q: During the current year, Yoon earned $10,000 in

During the current year, Yoon earned $10,000 in interest on corporate bonds and incurred $13,000 of investment interest expense related to the bond holdings. Yoon also earned $5,000 interest on privat...

Q: In the current year, Dylan earned taxable and tax-exempt

In the current year, Dylan earned taxable and tax-exempt interest from the following investments. Investment……………………………………………………………………….Interest Income 10-year municipal bond (issued in 2009)……………………...

Q: Cardinal Corporation, a calendar year taxpayer, receives dividend income of

Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municip...

Q: In each of the following independent situations, indicate whether the transfer

In each of the following independent situations, indicate whether the transfer is subject to the Federal gift tax. a. Asa contributes to his mayor’s reelection campaign fund. The mayor has promised to...

Q: The city of Toledo has received a proposal to build a new

The city of Toledo has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year bond paying 8 percent inte...

Q: Rogers Petersen and Cabots are two of the five largest investment banks

Rogers Petersen and Cabots are two of the five largest investment banks in the United States. Last year there was a major scandal at Cabots involving manipulation of some auctions for government bonds...

Q: 1. Which of the following is not a characteristic of a

1. Which of the following is not a characteristic of a constructive retirement of bonds from an intercompany bond transaction? a Bonds are retired for consolidated statement purposes only. b The recip...

Q: Son Corporation is a 70 percent–owned subsidiary of Pop Corporation

Son Corporation is a 70 percent–owned subsidiary of Pop Corporation. On January 2, 2016, Son purchased $600,000 par of Pop’s $900,000 outstanding bonds for $602,000 in the bond market. Pop’s bonds hav...

Q: Pam Corporation’s long-term debt on January 1, 2016,

Pam Corporation’s long-term debt on January 1, 2016, consists of $400,000 par value of 10 percent bonds payable due on January 1, 2020, with an unamortized discount of $8,000. On January 2, 2016, Sun...

Q: Comparative income statements for Pam Corporation and its 100 percent–owned

Comparative income statements for Pam Corporation and its 100 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2024, are summarized as follows: Pam purcha...

Q: The consolidated balance sheet of Pop Corporation and Son (an 80

The consolidated balance sheet of Pop Corporation and Son (an 80 percent–owned subsidiary) at December 31, 2016, includes the following items related to an 8 percent, $500,000 outstanding bond issue:...

Q: The balance sheets of Pam and Sun Corporations, an 80 percent

The balance sheets of Pam and Sun Corporations, an 80 percent–owned subsidiary of Pam, at December 31, 2016, are as follows (in thousands): The book value of Pam’...

Q: Pop Corporation has $8,000,000 of 12 percent

Pop Corporation has $8,000,000 of 12 percent bonds outstanding on December 31, 2016, with unamortized premium of $240,000. These bonds pay interest semiannually on July 1 and January 1 and mature on J...

Q: Comparative income statements for Pam Corporation and its 80 percent–owned

Comparative income statements for Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2017, are summarized as follows: Pam purchas...

Q: Pop Corporation acquired an 80 percent interest in Son Corporation at book

Pop Corporation acquired an 80 percent interest in Son Corporation at book value equal to fair value on January 1, 2017, at which time Son’s capital stock and retained earnings were $200,000 and $80,0...

Q: Intercompany transactions between Pop Corporation and Son Corporation, its 80 percent

Intercompany transactions between Pop Corporation and Son Corporation, its 80 percent–owned subsidiary, from January 2016, when Pop acquired its controlling interest, to December 31,...

Q: Financial statements for Pam Corporation and its 75 percent–owned subsidiary

Financial statements for Pam Corporation and its 75 percent–owned subsidiary, Sun Corporation, for 2016 are summarized as follows (in thousands): Pam acquired its interest in Sun a...

Q: Financial statements for Pop Corporation and its 75 percent–owned subsidiary

Financial statements for Pop Corporation and its 75 percent–owned subsidiary, Son Corporation, for 2017 are summarized as follows (in thousands): Pop Corporation acquired its inter...

Q: A company has a $1,000,000 bond issue

A company has a $1,000,000 bond issue outstanding with unamortized premium of $10,000 and unamortized issuance cost of $5,300. What is the book value of its liability? If an affiliate purchases half t...

Q: The following information related to intercompany bond holdings was taken from the

The following information related to intercompany bond holdings was taken from the adjusted trial balances of a parent and its 90 percent–owned subsidiary four years before the bond...

Q: Each of the following statements is dangerous or misleading. Explain why

Each of the following statements is dangerous or misleading. Explain why. a. A long-term United States government bond is always absolutely safe. b. All investors should prefer stocks to bonds becau...

Q: The following statements are true. Explain why. a.

The following statements are true. Explain why. a. If a bond’s coupon rate is higher than its yield to maturity, then the bond will sell for more than face value. b. If a bond’s coupon rate is lower...

Q: a. An 8%, five-year bond yields 6%.

a. An 8%, five-year bond yields 6%. If this yield to maturity remains unchanged, what will be its price one year hence? Assume annual coupon payments and a face value of $100. b. What is the total re...

Q: a. Longer-maturity bonds necessarily have longer durations.

a. Longer-maturity bonds necessarily have longer durations. b. The longer a bond’s duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility....

Q: A 10-year U.S. Treasury bond with a

A 10-year U.S. Treasury bond with a face value of $1,000 pays a coupon of 5.5% (2.75% of face value every six months). The reported yield to maturity is 5.2% (a six-month discount rate of 5.2/2 = 2.6%...

Q: A six-year government bond makes annual coupon payments of 5

A six-year government bond makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Suppose that one year later the bond still yields 3%. What return has the bondholder earned...

Q: A 6% six-year bond yields 12% and a

A 6% six-year bond yields 12% and a 10% six-year bond yields 8%. Calculate the six-year spot rate. Assume annual coupon payments.

Q: You have estimated spot rates as follows: r1 = 5.

You have estimated spot rates as follows: r1 = 5.00%, r2 = 5.40%, r3 = 5.70%, r4 = 5.90%, r5 = 6.00%. a. What are the discount factors for each date (that is, the present value of $1 paid in yea...

Q: Calculate durations and modified durations for the 3% bonds in Table 

Calculate durations and modified durations for the 3% bonds in Table 3.2. You can follow the procedure set out in Table 3.4 for the 9% coupon bonds. Confirm that modified durat...

Q: The formula for the duration of a perpetual bond that makes an

The formula for the duration of a perpetual bond that makes an equal payment each year in perpetuity is (1 + yield)/yield. If each bond yields 5%, which has the longer duration—a perpetual bond or a 1...

Q: Look again at Table 3.5. Suppose the spot interest

Look again at Table 3.5. Suppose the spot interest rates change to the following downward-sloping term structure: r1 = 4.6%, r2 =Â&nbs...

Q: Look at the spot interest rates shown in Problem 25. Suppose

Look at the spot interest rates shown in Problem 25. Suppose that someone told you that the five-year spot interest rate was 2.5%. Why would you not believe him? How could you make money if he was rig...

Q: Look again at the spot interest rates shown in Problem 25.

Look again at the spot interest rates shown in Problem 25. What can you deduce about the one-year spot interest rate in three years if. . . a. The expectations theory of term...

Q: Suppose that you buy a two-year 8% bond at

Suppose that you buy a two-year 8% bond at its face value. a. What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second? What will be your re...

Q: If a bond’s yield to maturity does not change, the return

If a bond’s yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this with a simple example of a four-year bond selling at a premium to f...

Q: Find the arbitrage opportunity (opportunities?). Assume for simplicity that coupons

Find the arbitrage opportunity (opportunities?). Assume for simplicity that coupons are paid annually. In each case the face value of the bond is $1,000.

Q: The duration of a bond that makes an equal payment each year

The duration of a bond that makes an equal payment each year in perpetuity is (1 + yield)/yield. Prove it.

Q: Look one more time at Table 3.5. /

Look one more time at Table 3.5. a. Suppose you knew the bond prices but not the spot interest rates. Explain how you would calculate the spot rates. b. Suppose that you could buy bond...

Q: A 10-year bond is issued with a face value of

A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If yields to maturity increase shortly after the T-bond is issued, what happens to the bond’s a. Coupon rate? b....

Q: A 10-year German government bond (bund) has a

A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5% paid annually. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond’s PV?

Q: Look again at Table 3.5. Suppose that spot interest

Look again at Table 3.5. Suppose that spot interest rates all change to 4%—a “flat” term structure of interest rates. a. What is the...

Q: Here are the prices of three bonds with 10-year maturities

Here are the prices of three bonds with 10-year maturities: Bond Coupon (%)………………Price (%) 2%......................................81.62% 4…………………………………..98.39 8………………………………...133.42 If coupons are...

Q: A bond’s credit rating provides a guide to its price. As

A bond’s credit rating provides a guide to its price. As we write this in early 2015, Aaa bonds yield 3.4% and Baa bonds yield 4.4%. If some bad news causes a 10% five-year bond to be unexpectedly dow...

Q: Which comes first in the market for U.S. Treasury

Which comes first in the market for U.S. Treasury bonds: a. Spot interest rates or yields to maturity? b. Bond prices or yields to maturity?

Q: Assume annual coupons. a. What is the formula for

Assume annual coupons. a. What is the formula for the value of a two-year, 5% bond in terms of spot rates? b. What is the formula for its value in terms of yield to maturity? c. If the two-year spot...

Q: The following table shows the prices of a sample of U.

The following table shows the prices of a sample of U.S. Treasury strips in February 2012. Each strip makes a single payment of $1,000 at maturity. a. Calculate the annually compounded, spot interest...

Q: a. Who benefits from the fine print in bond contracts when

a. Who benefits from the fine print in bond contracts when the firm gets into financial trouble? Give a one-sentence answer. b. Who benefits from the fine print when the bonds are issued? Suppose the...

Q: Modify Table 19.1 on the assumption that competition eliminates any

Modify Table 19.1 on the assumption that competition eliminates any opportunities to earn more than WACC on new investment after year 7 (PVGO = 0). How does the valuation of Rio change? Table 19.6 is...

Q: After each of the following issue methods, we have listed two

After each of the following issue methods, we have listed two types of issue. Choose the one more likely to employ that method. a. Rights issue (initial public offer/further sale of an already public...

Q: For each of the following pairs of issues, which is likely

For each of the following pairs of issues, which is likely to involve the lower proportionate underwriting and administrative costs? a. A large issue/a small issue b. A bond issue/a common stock iss...

Q: Some years ago the Australian firm Bond Corporation sold a share in

Some years ago the Australian firm Bond Corporation sold a share in some land that it owned near Rome for $110 million and as a result boosted its annual earnings by $74 million. A television program...

Q: You have an A-rated bond. Is a rise in

You have an A-rated bond. Is a rise in rating more likely than a fall? Would your answer be the same if the bond were B-rated?

Q: Other things equal, would you expect the difference between the price

Other things equal, would you expect the difference between the price of a Treasury bond and a corporate bond to increase or decrease with a. The company’s business risk? b. The degree of leverage?

Q: The difference between the value of a government bond and a simple

The difference between the value of a government bond and a simple corporate bond is equal to the value of an option. What is this option and what is its exercise price?

Q: You own a 5% bond maturing in two years and priced

You own a 5% bond maturing in two years and priced at 87%. Suppose that there is a 10% chance that at maturity the bond will default and you will receive only 40% of the promised payment. What is the...

Q: Company A has issued a single zero-coupon bond maturing in

Company A has issued a single zero-coupon bond maturing in 10 years. Company B has issued a coupon bond maturing in 10 years. Explain why it is more complicated to value B’s debt than A’s.

Q: For each of the following sinking funds, state whether the fund

For each of the following sinking funds, state whether the fund increases or decreases the value of the bond at the time of issue (or whether it is impossible to say): a. An optional sinking fund oper...

Q: Use Table 24.1 (but not the text) to

Use Table 24.1 (but not the text) to answer the following questions: a. Who are the principal underwriters for the J.C. Penney bond issue? b. Who is the trustee for the issue? c. How many dollars does...

Q: Look at Table 24.1:
a

Look at Table 24.1:
a. Suppose the debenture was issued on September 1, 1992, at 99.489%. How much would you have to pay to buy one bond delivered on September 15? Don’t forget to include accrued i...

Q: A puttable bond is a bond that may be repaid before maturity

A puttable bond is a bond that may be repaid before maturity at the investor’s option. Sketch a diagram similar to Figure 24.3 showing the relationship between the value of a straight bond and that of...

Q: In 1996, Marriott International made an issue of unusual bonds called

In 1996, Marriott International made an issue of unusual bonds called liquid yield option notes, or LYONS. The bond matured in 2011, had a zero coupon, and was issued at $532.15. It could have been co...

Q: Zenco, Inc. is financed by 3 million shares of common

Zenco, Inc. is financed by 3 million shares of common stock and by $5 million face value of 8% convertible debt maturing in 2026. Each bond has a face value of $1,000 and a conversion ratio of 200. Wh...

Q: Dorlcote Milling has outstanding a $1 million 3% mortgage bond

Dorlcote Milling has outstanding a $1 million 3% mortgage bond maturing in 10 years. The coupon on any new debt issued by the company is 10%. The finance director, Mr. Tulliver, cannot decide whether...

Q: Maple Aircraft has issued a 4¾% convertible subordinated debenture due 2020

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 2020. The conversion price is $47.00 and the debenture is callable at 102.75% of face value. The market price of the convertible...

Q: Suppose that the J.C. Penney bond was issued at

Suppose that the J.C. Penney bond was issued at face value and that investors continue to demand a yield of 8.25%. Sketch what you think would happen to the bond price as the first interest payment da...

Q: Suppose that a company simultaneously issues a zero-coupon bond and

Suppose that a company simultaneously issues a zero-coupon bond and a coupon bond with identical maturities. Both are callable at any time at their face values. Other things equal, which is likely to...

Q: Explain carefully why bond indentures may place limitations on the following actions

Explain carefully why bond indentures may place limitations on the following actions: a. Sale of the company’s assets. b. Payment of dividends to shareholders. c. Issue of additional senior debt.

Q: The Surplus Value Company had $10 million (face value)

The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2015. Each bond has the following features. Face value....................................$1,000 Conver...

Q: Piglet Pies has issued a zero-coupon 10-year bond

Piglet Pies has issued a zero-coupon 10-year bond that can be converted into 10 Piglet shares. Comparable straight bonds are yielding 8%. Piglet stock is priced at $50 a share. a. Suppose that you had...

Q: a. Marshall Arts has just invested $1 million in long

a. Marshall Arts has just invested $1 million in long-term Treasury bonds. Marshall is concerned about increasing volatility in interest rates. He decides to hedge using bond futures contracts. Should...

Q: Look back at Section 30-2. Cast Iron’s costs have

Look back at Section 30-2. Cast Iron’s costs have increased from $1,000 to $1,050. Assuming there is no possibility of repeat orders, answer the following: a. When should Cast Iron grant or refuse cre...

Q: Consider three securities: a. A floating-rate bond

Consider three securities: a. A floating-rate bond b. A preferred share paying a fixed dividend c. A floating-rate preferred If you were responsible for short-term investment of your firm’s excess...

Q: Which countries have a. The largest stock markets?

Which countries have a. The largest stock markets? b. The largest bond markets? c. The smallest direct holdings of shares by individual investors? d. The largest holdings of bank deposits by indiv...

Q: Is a total return swap on a bond the same as a

Is a total return swap on a bond the same as a credit default swap? Why or why not?

Q: Suppose that in 2023 one- and two-year interest rates

Suppose that in 2023 one- and two-year interest rates are 5.2% in the United States and 1.0% in Japan. The spot exchange rate is ¥120.22/$. Suppose that one year later interest rates are 3% in both co...

Q: Donaldson sold plumbing supplies. The St. Paul- Mercury Indemnity

Donaldson sold plumbing supplies. The St. Paul- Mercury Indemnity Co., as surety for him, executed and delivered a bond to the state of California for the payment of all sales taxes. Donaldson failed...

Q: First National Bank hired Longdon as a secretary and obtained a surety

First National Bank hired Longdon as a secretary and obtained a surety bond from Belton covering the bank against losses up to $100,000 resulting from Longdon ’ s improper conduct in the performance o...

Q: Hugill agreed to deliver shingles to W. I. Carpenter Lumber

Hugill agreed to deliver shingles to W. I. Carpenter Lumber Co. and furnished a surety bond to secure the faithful performance of the contract on his part. After a breach of the contract by Hugill, th...

Q: Richard Grassgreen was executive vice president and then president and chief operating

Richard Grassgreen was executive vice president and then president and chief operating officer of Kinder- Care, Inc., the largest proprietary provider of child care in the country. The company was res...

Q: David S. Talesnick served as the accountant for Kenneth Ronson and

David S. Talesnick served as the accountant for Kenneth Ronson and his wife as well as for Ronson ’ s company, performing accounting and tax services for all. From 1980 to 1983, Ronson, his wife, and...

Q: The following financial statement information was prepared for Blue Corporation and Sparse

The following financial statement information was prepared for Blue Corporation and Sparse Company at December 31, 20X2: Blue and Sparse agreed to combine as of January 1, 20X3. To effect the merger...

Q: On January 1, 20X2, End Corporation acquired all of Cork

On January 1, 20X2, End Corporation acquired all of Cork Corporation’s assets and liabilities by issuing shares of its common stock. Partial balance sheet data for the companies prio...

Q: 1. A German subsidiary of a U.S. firm

1. A German subsidiary of a U.S. firm has the British pound as its functional currency. Under the provisions of ASC Topic 830, the U.S. dollar from the subsidiary’s viewpoint would be: a Its local cur...

Q: In the late 1980s, General Electric Company (GE), whose

In the late 1980s, General Electric Company (GE), whose CEO at the time was Jack Welch, acquired Kidder Peabody, an investment banking firm founded in 1824. In 1991, Kidder hired a bond trader named J...

Q: Why is a bond considered to be a loan but a share

Why is a bond considered to be a loan but a share of stock is not? Why do corporations issue both bonds and shares of stock?

Q: How do the stock and bond markets provide information to businesses?

How do the stock and bond markets provide information to businesses? Why do stock and bond prices change over time?

Q: Investors use the bond ratings from Moody’s, S&P,

Investors use the bond ratings from Moody’s, S&P, and Fitch to determine which bonds they will buy and the prices they are willing to pay for them. The rating services charge the firms and governments...

Q: According to an article in the Wall Street Journal, in May

According to an article in the Wall Street Journal, in May 2015, Moody’s Investors Service cut its rating on McDonald’s bonds from A3 to A2. a. What is Moody’s top bond rating? Under what circumstance...

Q: Martin’s bonds pay interest semi-annually on July 1 and January

Martin’s bonds pay interest semi-annually on July 1 and January 1. If its fiscal year ends on September 30, which statement is true of Martin’s year-end adjusting journal entry for bond interest? a....

Q: Classify each of the following as: Trading security (T

Classify each of the following as: Trading security (T) Available-for-sale security (A) Held-to-maturity security (H) None of the above (N) ______ 1. A bond that management plans on owning until it i...

Q: Specify how each of the following items would be reported in the

Specify how each of the following items would be reported in the financial statements of Cunnington Enterprises for its current fiscal year. Also specify the amount that would appear on the statement....

Q: What do we know about the relationship between the market rate of

What do we know about the relationship between the market rate of interest and the stated interest rate for a particular bond when the bond is sold at a. par? b. a premium? c. a discount?

Q: Which interest rate on a bond determines the amount of the semi

Which interest rate on a bond determines the amount of the semi-annual interest payment? a. Effective rate b. Market rate c. Stated rate d. None of the above

Q: You serve as the executor for the estate of John Seagull.

You serve as the executor for the estate of John Seagull. The following transactions occur during June 2015: a John’s estate included a municipal bond with a fair value of $1,000,000. On the date of d...

Q: Tom Josephson dies on May 16, 2015, leaving a valid

Tom Josephson dies on May 16, 2015, leaving a valid will. The will reads as follows: I leave my automobile to my niece, Pat. I leave my stock investment accounts to my niece, Sue. I leave income on my...

Q: 1. Howard City should use a capital projects fund to account

1. Howard City should use a capital projects fund to account for: a Proceeds of a capital grant to finance a new civic center that will not provide services primarily on a user-charge basis b Construc...

Q: The City of Stockholm authorized construction of a $600,000

The City of Stockholm authorized construction of a $600,000 addition to the municipal building in September 2016. The addition will be financed by $200,000 from the general fund and a $400,000 serial...

Q: On June 15, 2016, Malmo City authorizes the issuance of

On June 15, 2016, Malmo City authorizes the issuance of $500,000 par of 6 percent serial bonds to be issued on July 1, 2016, and to mature in annual serials of $100,000 beginning on July 1, 2017. The...

Q: The City of Catalina authorized the construction of a new recreation center

The City of Catalina authorized the construction of a new recreation center at a total cost of $1,000,000 on June 15, 2016. On the same date, the city approved a $1,000,000, 8 percent, 10-year general...

Q: Use the information in P 23-6 to prepare a charge

Use the information in P 23-6 to prepare a charge–discharge statement for the estate of Tom Josephson for the period May 16, 2015 through June 30, 2015. Information from P 23-6 Tom Josephson dies on...

Q: The postclosing trial balance for the City of Fort Collins governmental funds

The postclosing trial balance for the City of Fort Collins governmental funds at June 30, 2016, shows the following ledger account balances: ADDITIONAL INFORMATION: 1. During the year, Fort Collins...

Q: You have been hired as trustee for the testamentary trust created by

You have been hired as trustee for the testamentary trust created by the will of Tom Josephson. The trust is created on June 30, 2015. (Use the information provided in P 23-6 and P 23-7.) The trust in...

Q: For each of the following events or transactions, prepare the necessary

For each of the following events or transactions, prepare the necessary journal entry or entries, and identify the fund or funds that will be affected. 1. A governmental unit collects fees totaling $4...

Q: The following transactions relate to the Fiedler County Utility Plant, a

The following transactions relate to the Fiedler County Utility Plant, a newly established municipal facility financed with debt secured solely by net revenue from fees and charges to external users....

Q: Use the information in P 23-3 to prepare a charge

Use the information in P 23-3 to prepare a charge–discharge statement for the estate of George Wilson for the period March 1, 2015 through April 30, 2015. Information from P 23-3 George Wilson dies...

Q: George Wilson dies on March 1, 2015, leaving a valid

George Wilson dies on March 1, 2015, leaving a valid will. The will reads as follows: I leave my home, furnishings, remaining bank account balances and personal possessions to my wife Helen. I leave m...

Q: 1. The following revenues were among those reported by Arvida Township

1. The following revenues were among those reported by Arvida Township in 2016: Net rental revenue (after depreciation) from............................$40,000 a parking garage owned by Arvida Intere...

Q: For each of the following events or transactions, identify the fund

For each of the following events or transactions, identify the fund or funds that will be affected. 1. The principal, interest, and related charges from a city’s general long-term debt bond issue will...

Q: For each of the following events or transactions, identify the fund

For each of the following events or transactions, identify the fund or funds that will be affected. 1. A governmental unit operates a municipal pool. Costs are intended to be recovered primarily from...

Q: You have been hired as trustee for the testamentary trust created by

You have been hired as trustee for the testamentary trust created by the will of George Wilson. The trust is created on April 30, 2015. (Use the information provided in P 23-3 and P 23-4.) The trust i...

Q: Explain how each of the following developments would affect the supply of

Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. a. The Fed’s bond traders buy bonds...

Q: For each of the following pairs, which bond would you expect

For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the U.S. government or a bond of an Eastern European government b. a bond that repays...

Q: Would each of the following transactions be included in net exports or

Would each of the following transactions be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or a decrease in that variable. a. An American buys a...

Q: Bond A pays $8,000 in 20 years. Bond

Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If t...

Q: Suppose that Intel is considering building a new chip- making factory

Suppose that Intel is considering building a new chip- making factory. a. Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel’s decision...

Q: O’Kelley Co. has outstanding $2 million face amount of 12

O’Kelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1, 2002, for $2 million. The 20-year bonds were issued in $1,000 denominations and mature on December 31, 2...

Q: Riley Co. has outstanding $40 million face amount of 15

Riley Co. has outstanding $40 million face amount of 15% bonds that were issued on January 1, 1998, for $39,000,000. The 20-year bonds mature on December 31, 2017, and are callable at 102 (that is, th...

Q: Kaye Co. issued $1 million face amount of 11%,

Kaye Co. issued $1 million face amount of 11%, 20-year bonds on April 1, 2010. The bonds pay interest on an annual basis on March 31 each year. Required: a. Assume that market interest rates were sli...

Q: Coley Co. issued $30 million face amount of 9%,

Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2010. The bonds pay interest on an annual basis on May 31 each year. Required: a. Assume that the market interest rates were s...

Q: Enter the following column headings across the top of a sheet of

Enter the following column headings across the top of a sheet of paper: Enter the transaction/adjustment letter in the first column and show the effect, if any, of each transaction/adjustment on the...

Q: This video focuses on the dynamics and importance of teams in a

This video focuses on the dynamics and importance of teams in a corporate environment. The video uses Zappos.com, an online shoe retailer formed in 1999, that is known for its quirky and fun, clan-bas...

Q: Many airlines have experienced financial troubles in recent years. When Japan

Many airlines have experienced financial troubles in recent years. When Japan Airlines had to buckle down and cut employee salaries several years ago, CEO Haruka Nishimatsu cut his own salary as well....

Q: You are a CPA in charge of auditing a midsize school district

You are a CPA in charge of auditing a midsize school district. You recognize that the risk of financial failure is dependent as much on factors not reported in the basic financial statements as on fac...

Q: At the start of a year, the JKG Foundation received a

At the start of a year, the JKG Foundation received a $10 million bequest consisting of a commercial warehouse building and $5 million of cash. The foundation immediately invested the $5 million cash...

Q: The director of the internal audit department of a midsize city received

The director of the internal audit department of a midsize city received a memo from a member of the city council that included the following: I am certain that you have followed recent press reports...

Q: You have been given the responsibility of assigning a bond rating to

You have been given the responsibility of assigning a bond rating to a municipal parking garage. Indicate the type of information you would consider essential to your assessment, noting in particular...

Q: The Louisville City bus system engaged in the following transactions:

The Louisville City bus system engaged in the following transactions: 1. It issued $10,000,000 in 8 percent revenue bonds. It used the proceeds to acquire new buses. The bonds were issued at par. 2. C...

Q: Why are bond ratings of vital concern to bond issuers?

Why are bond ratings of vital concern to bond issuers?

Q: The Cleveland Historical Society issues $40 million of 6 percent,

The Cleveland Historical Society issues $40 million of 6 percent, 15-year bonds at a price of $36,321,000 to finance the construction of a new museum. The price reflects an annual yield of 7.0 percent...

Q: A school district constructs a new elementary school at a cost of

A school district constructs a new elementary school at a cost of $24 million. It finances the project by issuing 30-year general obligation serial bonds, payable evenly over the outstanding term ($80...

Q: A government held the securities shown in the following table in one

A government held the securities shown in the following table in one of its investment portfolios. All the securities are either stocks or bonds that mature in more than one year. 1. Ignoring dividend...

Q: On August 2, 30 days prior to the end of its

On August 2, 30 days prior to the end of its August 31 fiscal year, a government issues $3 million of general obligation bonds. The proceeds are being accounted for in a capital projects fund (a gover...

Q: A government holds as investments the assets set forth below and determines

A government holds as investments the assets set forth below and determines its fair value as described. For each, indicate the level (1, 2, or 3) within the hierarchy of inputs to valuation technique...

Q: Select the best answer. 1. A government repaves

Select the best answer. 1. A government repaves a section of highway every four years at a cost of $2 million to preserve it at a specific condition level. How much should it report in depreciation c...

Q: A government holds the following investments. For each, indicate the

A government holds the following investments. For each, indicate the category in which it should most likely be classified. 1. A 20-year, 4 percent corporate bond rated AA by a leading rating agency....

Q: Crystal City established a capital projects fund to account for the construction

Crystal City established a capital projects fund to account for the construction of a new bridge. During the year the fund was established, the city issued bonds, signed (and encumbered) $6 million in...

Q: Durwin County issued $200 million in long‐term debt to

Durwin County issued $200 million in long‐term debt to fund major improvements to the county’s road and transportation systems. The debt is to be serviced from the...

Q: Upon annexing a recently developed subdivision, a government undertakes to extend

Upon annexing a recently developed subdivision, a government undertakes to extend sewer lines to the area. The estimated cost is $10.0 million. The project is to be funded with $8.5 million in special...

Q: A city agrees to extend water and sewer lines to an outlying

A city agrees to extend water and sewer lines to an outlying community. To cover the cost, the affected property owners agree to special assessments of $12 million. The assessments are to be paid over...

Q: The financial report of Montefiore Medical Center, which operates a major

The financial report of Montefiore Medical Center, which operates a major New York City hospital, included the following item in a summary of long‐term debt outstanding (dates change...

Q: Colgate County issued $1 million of 30‐year, 8

Colgate County issued $1 million of 30‐year, 8 percent term bonds to finance improvements to its electric utility plant. The bonds, accounted for in an enterprise fund, were issued at par. After the b...

Q: A debt service fund reports both routine principal and interest payments as

A debt service fund reports both routine principal and interest payments as well as an in-substance defeasance. The revenue and expenditure statement that follows is from an annual report of the City...

Q: Select the best answer. 1. A government opts

Select the best answer. 1. A government opts to set aside $10 million of general‐fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been...

Q: Select the best answer. 1. Which of the

Select the best answer. 1. Which of the following items is least likely to appear on the balance sheet of a capital projects fund? a. Cash b. Investments c. Construction in process d. Reserve for enc...

Q: During 2018 Luling Township engaged in the following transactions related to modernizing

During 2018 Luling Township engaged in the following transactions related to modernizing the bridge over the Luling River. The township accounts for long‐term construction projects in a capital projec...

Q: As the auditor of Clearwater County you learn that various assets are

As the auditor of Clearwater County you learn that various assets are subject to spending constraints. Indicate how each of the following constraints would affect the county’s reported fund balance (i...

Q: Select the best answer. 1. Oak Township issued the

Select the best answer. 1. Oak Township issued the following bonds during the year: Bonds to acquire equipment for a vehicle repair service that is accounted for in an internal service fund……………………………...

Q: Bertram County maintains a fund accounting system. Nevertheless, its comptroller

Bertram County maintains a fund accounting system. Nevertheless, its comptroller (who recently retired from a position in private industry) prepared the following balance sheet (in millions): The fund...

Q: The newly formed Buffalo School District engaged in the following transactions and

The newly formed Buffalo School District engaged in the following transactions and other events during the year: 1. It levied and collected property taxes of $110 million. 2. It issued $30 million in...

Q: Select the best answer. 1. A not-

Select the best answer. 1. A not-for-profit hospital signs a contract with an insurance company in which the company agrees to pay it $6 million in capitation fees for the year July 1, 2017, through...

Q: Select the best answer. 1. For purposes of

Select the best answer. 1. For purposes of external reporting, private colleges and universities a. Must adhere to all applicable FASB pronouncements b. Must adhere to all applicable GASB pronounceme...

Q: On July 1, a city issued, at par, $

On July 1, a city issued, at par, $100 million in 6 percent, 20‐year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest and principal on th...

Q: Select the best answer. 1. A term endowment

Select the best answer. 1. A term endowment is a gift a. The principal of which must be returned to the donor after a specified period of time b. The principal of which is available for expenditure a...

Q: The Wickliffe City Council authorizes the restoration of the city library.

The Wickliffe City Council authorizes the restoration of the city library. The project is to be funded by the issuance of bonds, a reimbursement grant from the state, and property taxes. 1. Prepare jo...

Q: The accompanying statements of the parks, recreations, and municipal capital

The accompanying statements of the parks, recreations, and municipal capital improvement bond fund (a capital projects fund) were drawn from an annual report of Parkville. According to a note in the r...

Q: The East Eanes School District engaged in or was affected by the

The East Eanes School District engaged in or was affected by the following events and transactions during its fiscal year ending June 30, 2018. 1. Teachers and other personnel earned $350,000 in vacat...

Q: On June 1, 2018, a city issues $2 million

On June 1, 2018, a city issues $2 million in 7 percent demand bonds. Although the bonds have a term of 10 years, they contain a “put” option permitting the holder to present the bonds for redemption,...

Q: In August 2017, voters of Balcones, a medium-sized

In August 2017, voters of Balcones, a medium-sized city, approved a $15 million general obligation bond issue to finance the construction of recreational facilities. In order to begin construction imm...

Q: For each of the following items relating to the debt of Marfa

For each of the following items relating to the debt of Marfa City, indicate whether and how the debt would be reported on a balance sheet of one of the city’s governmental funds. If it would not be r...

Q: Officials of Danville, determining that the city needed additional administrative space

Officials of Danville, determining that the city needed additional administrative space, decided to acquire an available office building. Aware that city voters were unlikely to approve a bond issue t...

Q: This problem is based on a recent annual report of the City

This problem is based on a recent annual report of the City of Tucson. Dates have been changed. 1. The MD&A reports that the city’s general obligation bonds were rated AA—by Standard & Poor’s. What is...

Q: Zeff Township assessed property owners $1,000,000 to

Zeff Township assessed property owners $1,000,000 to construct sidewalks. The assessments were payable over a period of 10 years in annual installments of $123,290, an amount that reflects interest at...

Q: Select the best answer. 1. Which of the

Select the best answer. 1. Which of the following is true with respect to bankruptcy? a. Per the federal bankruptcy code, a municipality can be declared bankrupt but not insolvent. b. Many major citi...

Q: The Alpine school district engaged in the following transactions in its fiscal

The Alpine school district engaged in the following transactions in its fiscal year ending August 31, 2018. By law, the district is required to establish a capital projects fund to account for school...

Q: Tammy, a resident of Virginia, is considering whether to purchase

Tammy, a resident of Virginia, is considering whether to purchase a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracke...

Q: Tonya, a Virginia resident, inherited a $100,000

Tonya, a Virginia resident, inherited a $100,000 State of Virginia bond this year. Her marginal Federal income tax rate is 35%, and her marginal state tax rate is 5%. The Virginia bond pays 3.3% inter...

Q: Julie is considering three alternative investments of $10,000.

Julie is considering three alternative investments of $10,000. Julie is in the 28% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investme...

Q: Determine the taxpayer’s gross income for tax purposes in each of the

Determine the taxpayer’s gross income for tax purposes in each of the following situations. a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock w...

Q: For each of the following independent transactions, calculate the recognized gain

For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Bonnie sells Parchment, Inc. stock (adjusted basis $17...

Q: List the information provided in corporate bond quotations.

List the information provided in corporate bond quotations.

Q: What is a bond’s yield to maturity? How does the price

What is a bond’s yield to maturity? How does the price paid for a bond affect its yield to maturity?

Q: When an investor sells a bond in the secondary market before the

When an investor sells a bond in the secondary market before the bond reaches maturity, what determines the return on the bond? How do interest rate movements affect bond returns in general?

Q: Discuss the effect of taxes on bond returns.

Discuss the effect of taxes on bond returns.

Q: What is a bond? What is a bond’s par value?

What is a bond? What is a bond’s par value? What are coupon payments, and how often are they normally paid? What happens when investors buy a bond below par value? When should you consider investing i...

Q: Which of the following income items, when received by a corporation

Which of the following income items, when received by a corporation, are included in personal holding company income (PHCI)? Indicate whether any special circumstances would exclude an income item tha...

Q: Parrish is a closely held C corporation. Robert and Kim Parrish

Parrish is a closely held C corporation. Robert and Kim Parrish own all its stock. The corporation, now in its second month of operation, expects to earn $200,000 of gross income in the current tax ye...

Q: Alpha Corporation is a holding company owned equally by Harry and Rita

Alpha Corporation is a holding company owned equally by Harry and Rita. They acquired the Alpha stock many years ago when the corporation was formed. Alpha has its money invested almost entirely in st...

Q: Abe and Brenda formed the AB Partnership ten years ago as a

Abe and Brenda formed the AB Partnership ten years ago as a general partnership and have been very successful with the business. However, in the current year, economic conditions caused them to lose s...

Q: Tina purchases an interest in the TP Partnership on January 1 of

Tina purchases an interest in the TP Partnership on January 1 of the current year for $50,000. The partnership uses the calendar year as its tax year and has $200,000 in recourse liabilities when Tina...

Q: The statement of net position (i.e., a balance

The statement of net position (i.e., a balance sheet) of a midsized city reports outstanding debt of $1,200,000,000. The city has a population of 800,000. The city is about to adopt the provisions of...

Q: “We really need to get this new material-handling equipment

“We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if...

Q: Company A and Company B each have a $10,000

Company A and Company B each have a $10,000 bond outstanding. Required: a. If both companies’ bonds are due in ten years, what factor(s) might make the bond market value the Company A bond at an amoun...

Q: Baker Company needs $1 million to expand its existing plant.

Baker Company needs $1 million to expand its existing plant. Baker management is considering the following two alternative forms of financing: 1. At the beginning of 2017, issue $1 million of converti...

Q: On April 1, 2017, Janine Corporation sold some of its

On April 1, 2017, Janine Corporation sold some of its five‐year, $1,000 face value, 12 percent term bonds dated March 1, 2017, at an effective annual interest rate (yield) of 10 percent. Interest is p...

Q: On January 1, 2016, Plywood Homes, Inc., issued

On January 1, 2016, Plywood Homes, Inc., issued 20‐year, 4 percent bonds having a face value of $1 million. The interest on the bonds is payable semiannually on June 30 and December 31. The proceeds t...

Q: FASB ASC 470 contains GAAP requirements for the initial recording of convertible

FASB ASC 470 contains GAAP requirements for the initial recording of convertible debt. These debt instruments have either beneficial conversion features or conversion features that are not beneficial....

Q: On January 1, 2017, Weiss Company issued for $1

On January 1, 2017, Weiss Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not...

Q: Under what conditions of bond issuance does a discount on bonds payable

Under what conditions of bond issuance does a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable arise?

Q: On March 1, 2017, Morgan Company sold its 5-

On March 1, 2017, Morgan Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2017, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first...

Q: Smyle Kaufman Company recently issued bonds with associated bond issue costs of

Smyle Kaufman Company recently issued bonds with associated bond issue costs of $4.5 million. Required: How should these bond issue costs be accounted for and classified in Kaufman’s financial statem...

Q: A bond that pays interest forever and has no maturity date is

A bond that pays interest forever and has no maturity date is a perpetual bond, also called a perpetuity or a consol. In what respect is a perpetual bond similar to: (1) a no-growth common stock and...

Q: The SEC attempts to protect investors who are purchasing newly issued securities

The SEC attempts to protect investors who are purchasing newly issued securities by making sure that the information put out by a company and its investment banks is correct and is not misleading. How...

Q: How do you think each of the following items would affect a

How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so? a. A decision of a privately held company to go publi...

Q: a. Bond; Treasury bond; corporate bond; municipal bond

a. Bond; Treasury bond; corporate bond; municipal bond; foreign bond b. Par value; maturity date; coupon payment; coupon interest rate c. Floating-rate bond; zero coupon bond; original issue discoun...

Q: The rate of return on a bond held to its maturity date

The rate of return on a bond held to its maturity date is called the bond’s yield to maturity. If interest rates in the economy rise after a bond has been issued, what will happen to the bond’s price...

Q: If you buy a callable bond and interest rates decline, will

If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain.

Q: Seven years ago, Goodwynn & Wolf Incorporated sold a 20-

Seven years ago, Goodwynn & Wolf Incorporated sold a 20-year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face v...

Q: “Short-term interest rates are more volatile than long-

“Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices.” Is this statement tru...

Q: Suppose you and most other investors expect the inflation rate to be

Suppose you and most other investors expect the inflation rate to be 7% next year, to fall to 5% during the following year, and then to remain at a rate of 3% thereafter. Assume that the real risk-fre...

Q: A Treasury bond that matures in 10 years has a yield of

A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premiu...

Q: The Garraty Company has two bond issues outstanding. Both bonds pay

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. a. What will b...

Q: A 10-year, 12% semiannual coupon bond with a

A 10-year, 12% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.) a. What is...

Q: You just purchased a bond that matures in 5 years. The

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

Q: A bond that matures in 7 years sells for $1,

A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond’s current yield?

Q: A bond trader purchased each of the following bonds at a yield

A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 7%. What is the percentage change in the price of ea...

Q: An investor has two bonds in his portfolio. Each bond matures

An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the oth...

Q: Sam Strother and Shawna Tibbs are vice presidents of Mutual of

Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and co_directors of the company’s pension fund management division. An important new client, the North-Western...

Q: A Treasury bond futures contract has a settlement price of 89’08.

A Treasury bond futures contract has a settlement price of 89’08. What is the implied annual yield?

Q: Would a bond be more or less desirable if you learned that

Would a bond be more or less desirable if you learned that it has a sinking fund that requires the company to redeem, say, 10% of the original issue each year beginning in 2019, either through open ma...

Q: What is a bond rating, and how do ratings affect

What is a bond rating, and how do ratings affect bonds’ prices and yields? Who rates bonds, and what are some of the factors the rating agencies consider? Is it possible for a given company to have s...

Q: Financial assets such as mortgages, credit card receivables, and auto

Financial assets such as mortgages, credit card receivables, and auto loan receivables are often bundled up, placed in a bank trust department, and then used as collateral for publicly traded bonds. B...

Q: What is the implied interest rate on a Treasury bond ($100

What is the implied interest rate on a Treasury bond ($100,000) futures contract that settled at 100’16? If interest rates increased by 1%, what would be the contract’s new value?

Q: Assume that you recently graduated and landed a job as a financial

Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an investment advisory company. Your first client recently inherited some assets and has asked you to e...

Q: Lewis Securities Inc. has decided to acquire a new market data

Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online da...

Q: Mullet Technologies is considering whether or not to refund a $75

Mullet Technologies is considering whether or not to refund a $75 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation costs on the 12% bonds ove...

Q: Jan Volk, financial manager of Green Sea Transport (GST),

Jan Volk, financial manager of Green Sea Transport (GST), has been asked by her boss to review GST’s outstanding debt issues for possible bond refunding. Five years ago, GST issued $40,000,000 of 11%,...

Q: How do companies decide whether or not to refund their outstanding bonds

How do companies decide whether or not to refund their outstanding bonds? If the NPV as calculated in a bond refunding analysis is positive, does that mean that the company should call and refund the...

Q: Maese Industries Inc. has warrants outstanding that permit the holders to

Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $25. a. Calculate the exercise value of the firm’s warrants if the common...

Q: Fifteen years ago, Roop Industries sold $400 million of convertible

Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value....

Q: The Howland Carpet Company has grown rapidly during the past 5 years

The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of cred...

Q: Paul Duncan, financial manager of EduSoft Inc., is facing a

Paul Duncan, financial manager of EduSoft Inc., is facing a dilemma. The firm was founded 5 years ago to provide educational software for the rapidly expanding primary and secondary school markets. Al...

Q: Suppose you just bought a convertible bond at its par value.

Suppose you just bought a convertible bond at its par value. Your broker gives you information on the bond’s conversion ratio, coupon rate, maturity, years of call protection, and the yield on nonconv...

Q: What is a warrant? If a company decides to raise capital

What is a warrant? If a company decides to raise capital by issuing bonds with warrants, how would the terms on both the bond and the warrant be set? Consider in particular how the coupon rate and mat...

Q: What is a convertible? If a company decides to raise capital

What is a convertible? If a company decides to raise capital by issuing convertible bonds, how would the terms on the bond be set? Consider specifically the maturity, coupon rate, and call features of...

Q: Lewis Securities Inc. has decided to acquire a new market data

Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online da...

Q: With the growth in demand for exotic foods, Possum Products’ CEO

With the growth in demand for exotic foods, Possum Products’ CEO Michael Munger is considering expanding the geographic footprint of its line of dried and smoked low-fat opossum, ost...

Q: Why are financial ratios used? Name five categories of ratios,

Why are financial ratios used? Name five categories of ratios, and then list several ratios in each category. Would a bank loan officer, a bond analyst, a stock analyst, and a manager be likely to put...

Q: An investor recently purchased a corporate bond that yields 9%. The

An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield?

Q: Katie paid $9,400 for a Ginnie Mae bond with

Katie paid $9,400 for a Ginnie Mae bond with a par value of $10,000 and a coupon rate of 6.5%. Two years later, after having received the annual interest payments on the bond, Katie sold the bond for...

Q: Timothy has an opportunity to buy a $1,000 par

Timothy has an opportunity to buy a $1,000 par value municipal bond with a coupon rate of 7% and a maturity of five years. The bond pays interest annually. If Timothy requires a return of 8%, what sho...

Q: Mark has a Treasury bond with a par value of $30

Mark has a Treasury bond with a par value of $30,000 and a coupon rate of 6%. The bond has 15 years to maturity. Mark needs to sell the bond and new bonds are currently carrying coupon rates of 8%. At...

Q: What if Mark’s Treasury bond in the previous problem had a coupon

What if Mark’s Treasury bond in the previous problem had a coupon rate of 9% and new bonds still had interest rates of 8%? For what price should Mark sell the bond in this situation?

Q: John is a relatively conservative investor. He has recently come into

John is a relatively conservative investor. He has recently come into a large inheritance and wishes to invest the money where he can get a good return, but not worry about losing his principal. His b...

Q: Discuss return and risk as they relate to bond mutual funds.

Discuss return and risk as they relate to bond mutual funds. What type of risk are all bond funds subject to? What other risk is associated with some bond funds? Describe the trade-off between risk an...

Q: What are international bond funds? What specific type of risk do

What are international bond funds? What specific type of risk do these funds have that domestic bond funds do not have?

Q: List and briefly describe the types of bond mutual funds.

List and briefly describe the types of bond mutual funds.

Q: Why are some U.S. investors attracted to international and

Why are some U.S. investors attracted to international and global bond funds? What risk is associated with these funds that investors are not subject to when investing strictly in U.S. bond funds? Dis...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years fro...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: RST business entity reported the following items during the current year:

RST business entity reported the following items during the current year: Dividends from 25%-owned domestic corporation…………………………$ 19,000 Municipal bond interest received…………………………………………………….18,000 C...

Q: For each of the following items, indicate whether the item will

For each of the following items, indicate whether the item will increase, decrease, or cause no change in the S corporation’s ordinary income (loss), AAA, and in the shareholder’s stock basis. The cor...

Q: Kaye Co. issued $1 million face amount of 11%,

Kaye Co. issued $1 million face amount of 11%, 20-year bonds on April 1, 2010. The bonds pay interest on an annual basis on March 31 each year. Required: a. Assume that market interest rates were sli...

Q: Coley Co. issued $30 million face amount of 9%,

Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2010. The bonds pay interest on an annual basis on May 31 each year. Required: a. Assume that the market interest rates were s...

Q: Enter the following column headings across the top of a sheet of

Enter the following column headings across the top of a sheet of paper: Enter the transaction/adjustment letter in the first column and show the effect, if any, of each transaction/adjustment on the...

Q: O’Kelley Co. has outstanding $2 million face amount of 12

O’Kelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1, 2002, for $2 million. The 20-year bonds were issued in $1,000 denominations and mature on December 31, 2...

Q: Riley Co. has outstanding $40 million face amount of 15

Riley Co. has outstanding $40 million face amount of 15% bonds that were issued on January 1, 1998, for $39,000,000. The 20-year bonds mature on December 31, 2017, and are callable at 102 (that is, th...

Q: Use the appropriate factors from Table 6-4 or Table 6

Use the appropriate factors from Table 6-4 or Table 6-5 to answer the following questions. Table 6-4: Required: a. Staley Co.’s common stock is expected to have a dividend of $6 p...

Q: A bond carries a stated rate of interest of 6% and

A bond carries a stated rate of interest of 6% and par of $1,000. It matures in 20 years. It is sold at 83 (83% of $1,000, or $830). a. Under normal conditions, why would the bond sell at less than p...

Q: Explain how the issuance of a convertible bond can be a very

Explain how the issuance of a convertible bond can be a very attractive means of raising common equity funds.

Q: Depreciation expense, amortization of patents, and amortization of bond discount

Depreciation expense, amortization of patents, and amortization of bond discount are examples of items that are added to net income when using the indirect method of presenting cash flows from operati...

Q: The rating on an industrial revenue bond is representative of the probability

The rating on an industrial revenue bond is representative of the probability of default of bonds issued with the full faith and credit of a governmental unit. Comment.

Q: A simple trust has the following receipts and expenditures for 2017.

A simple trust has the following receipts and expenditures for 2017. The trust instrument is silent with respect to capital gains, and state law concerning trust accounting income follows the Uniform...

Q: During the current year, a simple trust has the following receipts

During the current year, a simple trust has the following receipts and expenditures. The Uniform Act governs the accounting classification. Corporate bond interest…………..$60,000 Long-term capital gain...

Q: Refer to Problem C:14-42. How would your

Refer to Problem C:14-42. How would your answer change if instead the trust were a complex trust that makes no distributions in 2016 and 2017? Assume the trust earns $8,000 of corporate bond interest...

Q: The following items are relevant for the first income tax return for

The following items are relevant for the first income tax return for the Ken Kimble Estate. Mr. Kimble, a cash method of accounting taxpayer, died on July 1, 2017. Dividends……………………………………………………………………...

Q: Dana Dodson died October 31, 2016, with a gross estate

Dana Dodson died October 31, 2016, with a gross estate of $6.7 million, debts of $200,000, and a taxable estate of $6.5 million. Dana made no taxable gifts. All of her property passed under her will t...

Q: Glorietta Trust is an irrevocable discretionary trust funded by Grant Glorietta.

Glorietta Trust is an irrevocable discretionary trust funded by Grant Glorietta. The discretionary income beneficiary for life is Grant’s son, Gordon Glorietta (single). Gordon is a partner in a partn...

Q: You are planning to save for retirement over the next 30 years

You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a month in a stock account and $300 a month in a bond account. The return of the stock account is expec...

Q: Mark Sexton and Todd Story, the owners of S&S

Mark Sexton and Todd Story, the owners of S&S Air, have decided to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $3...

Q: Locate the Treasury bond in Figure 7.4 maturing in November

Locate the Treasury bond in Figure 7.4 maturing in November 2024. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid–ask...

Q: Bond X is a premium bond making annual payments. The bond

Bond X is a premium bond making annual payments. The bond pays an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pa...

Q: You purchase a bond with an invoice price of $968.

You purchase a bond with an invoice price of $968. The bond has a coupon rate of 7.4 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond?

Q: You purchase a bond with a coupon rate of 6.8

You purchase a bond with a coupon rate of 6.8 percent and a clean price of $1,073. If the next semiannual coupon payment is due in two months, what is the invoice price?

Q: Suppose the following bond quotes for IOU Corporation appear in the financial

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 15,...

Q: Suppose your company needs to raise $30 million and you want

Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue a...

Q: Bond P is a premium bond with a 12 percent coupon.

Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have five years to m...

Q: The McKeegan Corporation has two different bonds currently outstanding. Bond M

The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $1,100...

Q: Consider the prices in the following three Treasury issues as of May

Consider the prices in the following three Treasury issues as of May 15, 2007: The bond in the middle is callable in February 2008. What is the implied value of the call feature?

Q: You are planning to save for retirement over the next 30 years

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $900 a month in a stock account in real dollars and $450 a month in a bond account in real dolla...

Q: Is the yield to maturity on a bond the same thing as

Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the require...

Q: Suppose you buy a 7 percent coupon, 20-year bond

Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?

Q: Staind, Inc., has 7.5 percent coupon bonds on

Staind, Inc., has 7.5 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price?...

Q: Ackerman Co. has 9 percent coupon bonds on the market with

Ackerman Co. has 9 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for $934, what is its YTM?

Q: Grohl Co. issued 11-year bonds a year ago at

Grohl Co. issued 11-year bonds a year ago at a coupon rate of 6.9 percent. The bonds make semiannual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price?

Q: Amy and Mitchell are equal partners in the accrual basis AM Partnership

Amy and Mitchell are equal partners in the accrual basis AM Partnership. At the beginning of the current tax year, Amy’s capital account has a balance of $300,000, and the partnership has recourse deb...

Q: Based on the following facts, calculate adjusted current earnings (ACE

Based on the following facts, calculate adjusted current earnings (ACE). Alternative minimum taxable income (AMTI before ACE adjustment) ……………. $5,120,000 Municipal bond interest ……………………………………………………...

Q: Compute state taxable income for HippCo, Inc. Its Federal taxable

Compute state taxable income for HippCo, Inc. Its Federal taxable income for the year is $1 million. Its operations are confined to Oregon and Montana. HippCo generates only business and interest inco...

Q: Continue with the facts of Problem 44. Using the format of

Continue with the facts of Problem 44. Using the format of Exhibit 16.3, compute state taxable income for HippCo, assuming also that the taxpayer recognized $225,000 of net rent income during the year...

Q: Julie is considering three alternative investments of $10,000.

Julie is considering three alternative investments of $10,000. Julie is in the 28% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investme...

Q: Determine the taxpayer’s gross income for tax purposes in each of the

Determine the taxpayer’s gross income for tax purposes in each of the following situations. a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock w...

Q: Tammy, a resident of Virginia, is considering whether to purchase

Tammy, a resident of Virginia, is considering whether to purchase a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracke...

Q: Tonya, a Virginia resident, inherited a $100,000

Tonya, a Virginia resident, inherited a $100,000 State of Virginia bond this year. Her marginal Federal income tax rate is 35%, and her marginal state tax rate is 5%. The Virginia bond pays 3.3% inter...

Q: For each of the following independent transactions, calculate the recognized gain

For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Bonnie sells Parchment, Inc. stock (adjusted basis $17...

Q: Linda and Don are married and file a joint return. In

Linda and Don are married and file a joint return. In 2015, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest. a. Compute the couple’s adj...

Q: Cardinal Corporation, a calendar year taxpayer, receives dividend income of

Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municip...

Q: Explain the meaning of each of the following terms as they relate

Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and (b) callable.

Q: Why is underpricing not a great concern with bond offerings?

Why is underpricing not a great concern with bond offerings?

Q: Which of the following most accurately describes a Yankee bond?

Which of the following most accurately describes a Yankee bond? a. A bond issued by General Motors in Japan with the interest payable in U.S. dollars. b. A bond issued by General Motors in Japan with...

Q: You recently graduated from college, and your job search led you

You recently graduated from college, and your job search led you to S&S Air. Because you felt the company’s business was taking off, you accepted a job offer. The first day on th...

Q: We have seen that over long periods, stock investments have tended

We have seen that over long periods, stock investments have tended to substantially outperform bond investments. However, it is common to observe investors with long horizons holding entirely bonds. A...

Q: Mark Sexton and Todd Story have been discussing the future of S

Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skies in the company’s future. However, the fast growth...

Q: Sheila, a single taxpayer, is a retired computer executive with

Sheila, a single taxpayer, is a retired computer executive with a taxable income of $100,000 in the current year. She receives $30,000 per year in tax-exempt municipal bond interest. Adam and Tanya...

Q: What is the purpose of excluding municipal bond interest from gross income

What is the purpose of excluding municipal bond interest from gross income?

Q: Kermit receives a $1,000, 6% bond of

Kermit receives a $1,000, 6% bond of General Foods, Inc., from his uncle Ed as a graduation present. The bond pays interest on June 30 and December 31. Kermit receives the bond on May 1. Identify th...

Q: Horatio owns Utah general purpose bonds with a face value of $

Horatio owns Utah general purpose bonds with a face value of $50,000 that he purchased last year for $52,000. During the current year, Horatio receives $2,400 in interest on the bonds. In December,...

Q: Maysa is considering making an investment in municipal bonds yielding 4%.

Maysa is considering making an investment in municipal bonds yielding 4%. What would the yield on a taxable bond have to be to provide a higher after-tax return than the municipal bond if Maysa is in...

Q: On May 1, Raisa received a $10,000,

On May 1, Raisa received a $10,000, 9% bond of Altomba Corporation as a graduation present from her Aunt Lenia. The bond pays interest on June 30 and December 31. What are the tax effects of this tr...

Q: Harold and Maude are both 55 years of age and have two

Harold and Maude are both 55 years of age and have two married children. Harold is an engineer and is an active participant in his company’s qualified pension plan. Maude is a retired school teacher...

Q: Marjorie is single and has the following investment income:

Marjorie is single and has the following investment income: Interest on savings…………………………………$2,900 Municipal bond interest…………………………….1,500 Dividends………………………………………………..7,600 She pays investment int...

Q: In each of the following situations, explain why the taxpayer's action

In each of the following situations, explain why the taxpayer's action is or is not tax evasion: a. Jamal owns an electrical appliance repair service. When a client pays him in cash, he gives the cas...

Q: Determine the taxable income of each of the following dependents in 2017

Determine the taxable income of each of the following dependents in 2017: a. Louis is 12 and receives $1,250 in interest income. b. Jackson is 16. He earns $2,050 from his newspaper route and receiv...

Q: For each of the dependents in problem 63, calculate the income

For each of the dependents in problem 63, calculate the income tax on their taxable income. In each case, assume that their parents' taxable income is $128,000. Data from Problem 63: Determine the...

Q: In January 2017, Conan, a cash basis taxpayer, purchases

In January 2017, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a 3-ye...

Q: Sony revealed that the script for a new James Bond movie had

Sony revealed that the script for a new James Bond movie had been hacked and leaked. Could a news publication legally print or post online that entire script? Why or why not?

Q: Answer the following questions. a. Why does the news

Answer the following questions. a. Why does the news article say that bond prices and interest rates move in opposite directions? Is it correct? Explain. b. How does a government budget deficit influe...

Q: Treasury Yields Fall to Two-Week Low Treasury bond prices rose

Treasury Yields Fall to Two-Week Low Treasury bond prices rose on Monday, pushing interest rates down. The interest rate on 10-year bonds fell 4 basis points to 1.65%. What is the relationship between...

Q: The figure shows an economy’s demand for money curve. /

The figure shows an economy’s demand for money curve. If the central bank decreases the quantity of real money from $400 billion to $390 billion, explain how the price of a bond wil...

Q: Harry and Matilda are married and have the following tax return data

Harry and Matilda are married and have the following tax return data for 2017: Do Harry and Matilda owe any income tax for 2017? Explain why they might owe tax in 2017 and discuss the items on their...

Q: A taxpayer who purchases a Series EE U.S. Savings

A taxpayer who purchases a Series EE U.S. Savings Bond must report the interest income (i.e., increase in value) on the bond on the date the bond is redeemed, or the taxpayer can elect to report the i...

Q: Interest on corporate bonds is taxable to the recipient whereas interest on

Interest on corporate bonds is taxable to the recipient whereas interest on municipal bonds is tax-free. Would you expect that the interest rate on a corporate bond would be higher or lower than the r...

Q: Congress has chosen to exempt certain income from taxation, such as

Congress has chosen to exempt certain income from taxation, such as scholarships, gifts, life insurance proceeds, municipal bond interest, and employee fringe benefits. Given that one of the primary p...

Q: Concerning the exemption for U.S. Savings Bond interest used

Concerning the exemption for U.S. Savings Bond interest used for education expenses, what are the lower and upper income limitations for married taxpayers, and how is the exemption determined when tax...

Q: In 2017, Joseph and Patricia Jefferson redeemed $8,000

In 2017, Joseph and Patricia Jefferson redeemed $8,000 of Series EE U.S. savings bonds (principal of $5,500 and interest of $2,500), the proceeds from which were used to pay for qualified higher educa...

Q: The amount of savings bond interest exempt from tax is limited when

The amount of savings bond interest exempt from tax is limited when an individual is single and his or her AGI reaches a. $117,250. b. $77,550. c. $78,150. d. $76,000.

Q: The artificial tax shelter arrangements developed by KPMG LLP for wealthy clients

The artificial tax shelter arrangements developed by KPMG LLP for wealthy clients that led to the settlement of a legal action with the Department of Treasury and the Internal Revenue Service. On Augu...

Q: If higher money growth is associated with higher future inflation and if

If higher money growth is associated with higher future inflation and if announced money growth turns out to be extremely high but is still less than the market expected, what do you think would happe...

Q: Is a Treasury bond issued 29 years ago with six months remaining

Is a Treasury bond issued 29 years ago with six months remaining before it matures a money market instrument?

Q: M&E, Inc., has an outstanding convertible bond.

M&E, Inc., has an outstanding convertible bond. The bond can be converted into 20 shares of common equity (currently trading at $52/share). The bond has five years of remaining maturity, a $1,000 par...

Q: Assume the debt in the previous question is trading at $1

Assume the debt in the previous question is trading at $1,035. How can you earn a riskless profit from this situation (arbitrage)? Data from Question 8: M&E, Inc., has an outstanding convertible bond...

Q: A seven-year, $1,000 par bond has

A seven-year, $1,000 par bond has an 8% annual coupon and is currently yielding 7.5%. The bond can be called in two years at a call price of $1,010. What is the bond yielding, assuming it will be call...

Q: A 20-year $1,000 par value bond has

A 20-year $1,000 par value bond has a 7% annual coupon. The bond is callable after the 10th year for a call premium of $1,025. If the bond is trading with a yield to call of 6.25%, what is the bond’s...

Q: A two-year $1,000 par zero-coupon

A two-year $1,000 par zero-coupon bond is currently priced at $819.00. A two-year $1,000 annuity is currently priced at $1,712.52. If you want to invest $50,000 in one of the two securities, which is...

Q: The yield on a corporate bond is 10%, and it is

The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%. A par value municipal bond with a coupon rate of 8.50% is available. Which security is a better...

Q: If the municipal bond rate is 4.25% and the

If the municipal bond rate is 4.25% and the corporate bond rate is 6.25%, what is the marginal tax rate, assuming investors are indifferent between the two bonds?

Q: A 10-year, $1,000 par value bond

A 10-year, $1,000 par value bond with a 5% annual coupon is trading to yield 6%. What is the current yield?

Q: A $1,000 par bond with an annual coupon has

A $1,000 par bond with an annual coupon has only one year until maturity. Its current yield is 6.713%, and its yield to maturity is 10%. What is the price of the bond?

Q: A one-year discount bond with a face value of $

A one-year discount bond with a face value of $1,000 was purchased for $900. What is the yield to maturity? What is the yield on a discount basis? (See Chapters 3 and 12.)

Q: A 10-year $1,000 par value bond has

A 10-year $1,000 par value bond has a 9% semiannual coupon and a nominal yield to maturity of 8.8%. What is the price of the bond?

Q: Your company owns the following bonds: /

Your company owns the following bonds: If general interest rates rise from 8% to 8.5%, what is the approximate change in the value of the portfolio?

Q: A bond makes an annual $80 interest payment (8%

A bond makes an annual $80 interest payment (8% coupon). The bond has five years before it matures, at which time it will pay $1,000. Assuming a discount rate of 10%, what should be the price of the b...

Q: A zero-coupon bond has a par value of $1

A zero-coupon bond has a par value of $1,000 and matures in 20 years. Investors require a 10% annual return on these bonds. For what price should the bond sell? (Note: Zero-coupon bonds do not pay int...

Q: Consider the two bonds described below: /

Consider the two bonds described below: a. If both bonds had a required return of 8%, what would the bonds’ prices be? b. Describe what it means if a bond sells at a discount, a p...

Q: A bond provides information about its par value, coupon interest rate

A bond provides information about its par value, coupon interest rate, and maturity date. Define each of these.

Q: As interest rates in the market change over time, the market

As interest rates in the market change over time, the market price of bonds rises and falls. The change in the value of bonds due to changes in interest rates is a risk incurred by bond investors. Wha...

Q: In addition to Treasury securities, some agencies of the government issue

In addition to Treasury securities, some agencies of the government issue bonds. List three such agencies, and state what the funds raised by the bond issues are used for.

Q: A call provision on a bond allows the issuer to redeem the

A call provision on a bond allows the issuer to redeem the bond at will. Investors do not like call provisions and so require higher interest on callable bonds. Why do issuers continue to issue callab...

Q: Identify the cash flows available to an investor in stock. How

Identify the cash flows available to an investor in stock. How reliably can these cash flows be estimated? Compare the problem of estimating stock cash flows to estimating bond cash flows. Which secur...

Q: Calculate the duration of a $1,000, 6%

Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.

Q: Consider the bond in the previous question. Calculate the expected price

Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Calculate the actual price change using discounted cas...

Q: The current exchange rate is 0.75 euro per dollar,

The current exchange rate is 0.75 euro per dollar, but you believe the dollar will decline to 0.67 euro per dollar. If a euro-denominated bond is yielding 2%, what return do you expect in U.S. dollars...

Q: Consider a bond with a 7% annual coupon and a face

Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table. What relationships do you observe between maturity and discount rate and the current price?

Q: A 10-year, 7% coupon bond with a face

A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10.

Q: You have paid $980.30 for an 8% coupon

You have paid $980.30 for an 8% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 9% rate of return on this investmen...

Q: Calculate the present value of a $1,000 zero-

Calculate the present value of a $1,000 zero-coupon bond with five years to maturity if the yield to maturity is 6%.

Q: Consider a coupon bond that has a $1,000 par

Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has eight years to maturity. What is the bond’s yield to maturity?

Q: Write down the formula that is used to calculate the yield to

Write down the formula that is used to calculate the yield to maturity on a 20-year 10% coupon bond with $1,000 face value that sells for $2,000.

Q: If there is a decline in interest rates, which would you

If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk?

Q: You own a $1,000-par zero-coupon

You own a $1,000-par zero-coupon bond that has 5 years of remaining maturity. You plan on selling the bond in one year and believe that the required yield next year will have the following probability...

Q: Consider a $1,000-par junk bond paying a

Consider a $1,000-par junk bond paying a 12% annual coupon. The issuing company has 20% chance of defaulting this year; in which case, the bond would not pay anything. If the company survives the firs...

Q: A bank added a bond to its portfolio. The bond has

A bank added a bond to its portfolio. The bond has a duration of 12.3 years and cost $1,109. Just after buying the bond, the bank discovered that market interest rates are expected to rise from 8% to...

Q: Laura, a bond portfolio manager, administers a $10 million

Laura, a bond portfolio manager, administers a $10 million portfolio. The portfolio currently has a duration of 8.5 years. Laura wants to shorten the duration to 6 years using T-bill futures. T-bill f...

Q: Chicago Bank and Trust has $100 million in assets and $

Chicago Bank and Trust has $100 million in assets and $83 million in liabilities. The duration of the assets is 5.9 years, and the duration of the liabilities is 1.8 years. How many futures contracts...

Q: If at the expiration date, the deliverable Treasury bond is selling

If at the expiration date, the deliverable Treasury bond is selling for 101 but the Treasury bond futures contract is selling for 102, what will happen to the futures price? Explain your answer.

Q: Consider a put contract on a T-bond with an exercise

Consider a put contract on a T-bond with an exercise price of 101 12/32. The contract represents $100,000 of bond principal and had a premium of $750. The actual T-bond price falls to 98 16/32 at the...

Q: If you buy a $100,000 February Treasury bond contract

If you buy a $100,000 February Treasury bond contract for 108 and the price of the deliverable Treasury bond at the expiration date is 102, what is your profit or loss on the contract?

Q: If you buy a put option on a $100,000

If you buy a put option on a $100,000 Treasury bond futures contract with an exercise price of 95 and the price of the Treasury bond is 120 at expiration, is the contract in the money, out of the mone...

Q: Suppose that you buy a call option on a $100,

Suppose that you buy a call option on a $100,000 Treasury bond futures contract with an exercise price of 110 for a premium of $1,500. If on expiration the futures contract has a price of 111, what is...

Q: Predict what will happen to interest rates if prices in the bond

Predict what will happen to interest rates if prices in the bond market become more volatile.

Q: At your favorite bond store, Bonds-R-Us,

At your favorite bond store, Bonds-R-Us, you see the following prices: a. 1-year $100 zero selling for $90.19 b. 3-year 10% coupon $1000 par bond selling for $1000 c. 2-year 10% coupon $1000 par bond...

Q: Consider the decision to purchase either a five-year corporate bond

Consider the decision to purchase either a five-year corporate bond or a five-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 1...

Q: Which bond would produce a greater return if the expectations theory were

Which bond would produce a greater return if the expectations theory were to hold true, a two-year bond with an interest rate of 15% or two one-year bonds with sequential interest payments of 13% and...

Q: One-year T-bill rates are 2% currently.

One-year T-bill rates are 2% currently. If interest rates are expected to go up after three years by 2% every year, what should be the required interest rate on a 10-year bond issued today? Assume tha...

Q: How does the after-tax yield on a $1,

How does the after-tax yield on a $1,000,000 municipal bond with a coupon rate of 8% paying interest annually compare with that of a $1,000,000 corporate bond with a coupon rate of 10% paying interest...

Q: Debt issued by Southeastern Corporation currently yields 12%. A municipal bond

Debt issued by Southeastern Corporation currently yields 12%. A municipal bond of equal risk currently yields 8%. At what marginal tax rate would an investor be indifferent between these two bonds?

Q: Predict what would happen to the risk premiums on corporate bonds if

Predict what would happen to the risk premiums on corporate bonds if brokerage commissions were lowered in the corporate bond market.

Q: Which should have the higher risk premium on its interest rates,

Which should have the higher risk premium on its interest rates, a corporate bond with a Moody’s Baa rating or a corporate bond with a C rating? Why?

Q: Bell Corp. issues a bond with the following features

Bell Corp. issues a bond with the following features The current interest rate on comparable debt is 7 percent, so the bond initially sells for $713. What is the accrued interest on the bond for each...

Q: You invest $1,000 in a large company stock and

You invest $1,000 in a large company stock and $1,000 in a corporate bond. If you earn 10.0 percent on the stock and 6.0 percent on the bond and hold each security for 10 years, what are the terminal...

Q: A call penalty protects whom from what? Why may firms choose

A call penalty protects whom from what? Why may firms choose to retire debt prior to maturity? Would you expect a callable bond to have a higher or lower coupon rate of interest than a non-callable bo...

Q: Ken Saffaf’s 22-year-old daughter Bozena has just accepted

Ken Saffaf’s 22-year-old daughter Bozena has just accepted a job with Doctor Medical Systems (DMS), a firm specializing in computer services for doctors. DMS offers employees a 401(k...

Q: The Sourland Mountain in New Jersey investment club has recently asked you

The Sourland Mountain in New Jersey investment club has recently asked you to give a presentation on investing in corporate bonds. Club members have previously invested solely in corporate stocks, but...

Q: What are the holding period and the annualized compounded returns if you

What are the holding period and the annualized compounded returns if you buy a zero coupon bond for $519 and it is redeemed after five years for $1,000? Compare the answer to the answer for Problem 5....

Q: What advantages do discounted bonds offer to investors? Why may a

What advantages do discounted bonds offer to investors? Why may a bond be called if it is selling at a premium?

Q: Stephanie Waldron is an aggressive individual whose career as a self-

Stephanie Waldron is an aggressive individual whose career as a self-employed management consultant has blossomed. Waldron is both willing and able to bear substantial risk in order to earn a higher r...

Q: Fiona Corcoran is responsible for meeting distributions for EEM Health and Life

Fiona Corcoran is responsible for meeting distributions for EEM Health and Life Insurance Company. An actuary, Robert Bjornsund, has forecasted that a specific policy will require $210,000 after ten y...

Q: Kris Trejo, who recently retired, has come to you for

Kris Trejo, who recently retired, has come to you for financial help. At the initial consultation, you realized that he is an investor with a very low risk tolerance who wants to increase current inco...

Q: An investor is in the 28 percent income tax bracket and can

An investor is in the 28 percent income tax bracket and can earn 3.3 percent on a nontaxable bond. What is the comparable yield on a taxable bond? If this same investor can earn 5.9 percent on a taxab...

Q: An investor in the 35 percent tax bracket may purchase a corporate

An investor in the 35 percent tax bracket may purchase a corporate bond that is rated double B and is traded on the New York Stock Exchange (the bond division). This bond yields 9.0 percent. The inves...

Q: Molly Matters Inc. issues a split-coupon $1,

Molly Matters Inc. issues a split-coupon $1,000 bond that matures in seven years. Interest payments are $80 a year (8 percent) and start after three years have lapsed. The bond initially sells for a d...

Q: What is the price of the following zero coupon bonds if interest

What is the price of the following zero coupon bonds if interest rates are (a) 4 percent, (b) 7 percent, and (c) 10 percent? • Bond A: zero coupon; maturity 5 years • Bond B: zero coupon; maturity 1...

Q: You are in the 28 percent federal income tax bracket. A

You are in the 28 percent federal income tax bracket. A corporate bond offers you 6.8 percent while a tax-exempt bond with the same credit rating and term to maturity offers 4.1 percent. On the basis...

Q: (This problem illustrates “riding the yield curve,” which is

(This problem illustrates “riding the yield curve,” which is covered in the appendix to this chapter.) The U.S. Treasury issues a ten-year, zero coupon bond. a) Wha...

Q: (This problem illustrates the impact of a call feature. Review

(This problem illustrates the impact of a call feature. Review the material in the previous chapter, if necessary.) In 2005, a brokerage firm offered a tax-exempt 4.5 percent Ocean City, New Jersey, b...

Q: You purchase a 6 percent $10,000 bond for $

You purchase a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest for a total outlay of $9,336. Subsequently you receive a $300 interest payment. You are in the 20 percent income tax brac...

Q: What is the difference between the following? a) A

What is the difference between the following? a) A bond secured by a moral obligation and a bond secured by full faith and credit b) A revenue bond and a general obligation bond Are there any similari...

Q: What is the difference between a term bond issue and a serial

What is the difference between a term bond issue and a serial bond issue? Why are many capital improvements made by state and local governments financed through serial bonds?

Q: If interest rates increase, what should happen to the following?

If interest rates increase, what should happen to the following? a) The price of a Ginnie Mae bond and the price of a municipal bond b) The payments received from a Ginnie Mae bond and the payments re...

Q: Identify which government securities may be appropriate for the following investors:

Identify which government securities may be appropriate for the following investors: a) A retired couple seeking income b) An individual in the highest tax bracket seeking a liquid investment c) An in...

Q: You sell a 6 percent $10,000 bond for $

You sell a 6 percent $10,000 bond for $9,180 plus $156 in accrued interest for a total of $9,336. Soon thereafter the company makes a $300 interest payment. You are in the 20 percent income tax bracke...

Q: How is the value of a convertible bond in terms of stock

How is the value of a convertible bond in terms of stock determined? What effect does this conversion value have on the price of the bond?

Q: A $1,000 bond has a coupon rate of 8

A $1,000 bond has a coupon rate of 8 percent and matures after ten years. a) What is the current price of the bond if the comparable rate of interest is 8 percent? b) What is the current price of the...

Q: A $1,000 bond has a coupon rate of 10

A $1,000 bond has a coupon rate of 10 percent and matures after eight years. Interest rates are currently 7 percent. a) What will the price of this bond be if the interest is paid annually? b) What wi...

Q: A $1,000 zero coupon bond sells for $519

A $1,000 zero coupon bond sells for $519 and matures after five years. What is the current yield and the yield to maturity?

Q: Given the following information: XY Inc. 5% bond

Given the following information: XY Inc. 5% bond AB Inc. 14% bond Both bonds are for $1,000, mature in 20 years, and are rated AAA. a) What should be the current market price of each bond if the inter...

Q: a) A stock costs $900 and pays an annual $

a) A stock costs $900 and pays an annual $40 cash dividend. If you expect to sell the stock for $1,000 after five years, what is your anticipated return on the investment? b) A $1,000 bond has a 4 per...

Q: Company X has the following bonds outstanding: /

Company X has the following bonds outstanding: Initially, both bonds sold at $1,000 with yields to maturity of 8 percent. a) After two years, the interest rate on comparable debt is 10 percent. What...

Q: A high-yield bond has the following features:

A high-yield bond has the following features: a) If comparable yields are 12 percent, what should be the price of this bond? b) Would you expect the firm to call the bond if yields are 12 percent? c...

Q: What is the price of the following split coupon bond if comparable

What is the price of the following split coupon bond if comparable yields are 12 percent? If comparable yields decline to 10 percent, what is the appreciation in the price of the bond?

Q: A bond has the following terms: /

A bond has the following terms: a) Why do you believe that the terms were constructed as specified? b) What is the bond’s price if comparable debt yields 12 percent? c) What is the...

Q: Tinker Spy Corp. has a high-yield junk bond with

Tinker Spy Corp. has a high-yield junk bond with the following features: The current interest rate on comparable debt is 10 percent. If you expect that the interest rate will be 8 percent five years f...

Q: An extendable bond has the following features: /

An extendable bond has the following features: a) If comparable yields are 12 percent, what will be the price of the bond if investors anticipate that it will be retired after eight years? b) What im...

Q: Stella’s Dog Biscuits Inc. has outstanding a high-yield bond

Stella’s Dog Biscuits Inc. has outstanding a high-yield bond with the following features: The current interest rate on comparable debt is 8 percent. a) If you expect that interest r...

Q: You purchase a 7 percent $1,000 bond with a

You purchase a 7 percent $1,000 bond with a term of ten years and reinvest all interest payments. If interest rates rise to 10 percent after you purchase the bond, what is the return on your investmen...

Q: The prices of longer-term bonds are more volatile than the

The prices of longer-term bonds are more volatile than the prices of shorter-term bonds with the same coupon. The prices of bonds with smaller coupons are more volatile than bonds with larger coupons...

Q: Compute the duration for bond C, and rank the bonds on

Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of bonds A and B are $1,000 and $1,268, respectivel...

Q: What is the price of each of the following bonds ($1

What is the price of each of the following bonds ($1,000 principal) if the current interest rate is 9 percent? b) What is the duration of each bond? c) Rank the bonds in terms of price fluctuations w...

Q: A ten-year bond with a 9 percent coupon will sell

A ten-year bond with a 9 percent coupon will sell for $1,000 when interest rates are 9 percent. What is the duration of this bond? Using duration to forecast the change in the price of the bond, calcu...

Q: You own the following $1,000 bonds: /

You own the following $1,000 bonds: Currently the structure of yields is positive so that each bond sells for its par value. However, you expect that inflation will increase and cause interest rates t...

Q: In the section on the yield to call, a bond pays

In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity....

Q: (This problem uses the material in Appendix 14B concerning bond valuation

(This problem uses the material in Appendix 14B concerning bond valuation.) Two bonds have the following features: The structure of yields is a) What is the valuation of each security based on the yi...

Q: What causes bond prices to fluctuate?

What causes bond prices to fluctuate?

Q: Although all bond prices fluctuate, which bond prices tend to fluctuate

Although all bond prices fluctuate, which bond prices tend to fluctuate more?

Q: What differentiates the term of a bond and its duration? If

What differentiates the term of a bond and its duration? If bond A has a 10 percent coupon while bond B has a 5 percent coupon and they both mature after ten years,which bond has the shorter duration?...

Q: If interest rates rise, bond prices will fall. Given the

If interest rates rise, bond prices will fall. Given the following pairs of bonds, indicate which bond’s price will experience the greater price decline. a) Bond A Coupon: 10% Maturity: 5 years Bond B...

Q: Bell Company purchased 60 percent ownership of Troll Corporation on January 1

Bell Company purchased 60 percent ownership of Troll Corporation on January 1, 20X1, for $82,800. On that date, the noncontrolling interest had a fair value of $55,200 and Troll reported common stock...

Q: Pine Corporation acquired 70 percent of Bock Company’s voting common shares on

Pine Corporation acquired 70 percent of Bock Company’s voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 an...

Q: Block Corporation was created on January 1, 20X0, to develop

Block Corporation was created on January 1, 20X0, to develop computer software. On January 1, 20X5, Foster Company purchased 90 percent of Block’s common stock at underlying book val...

Q: Randall Corporation acquired 80 percent of Sharp Company’s voting shares on January

Randall Corporation acquired 80 percent of Sharp Company’s voting shares on January 1, 20X4, for $280,000 in cash and marketable securities. At that date, the noncontrolling interest...

Q: On January 1, 20X5, Pond Corporation acquired 80 percent of

On January 1, 20X5, Pond Corporation acquired 80 percent of Skate Company’s stock by issuing common stock with a fair value of $180,000. At that date, Skate reported net assets of $1...

Q: Topp Corporation acquired 70 percent of Morris Company’s voting common stock on

Topp Corporation acquired 70 percent of Morris Company’s voting common stock on January 1, 20X3, for $158,900. Morris reported common stock outstanding of $100,000 and retained earni...

Q: Figure 1.1 outlines the operations, finance/accounting,

Figure 1.1 outlines the operations, finance/accounting, and marketing functions of three organizations. Prepare a chart similar to Figure 1.1 outlining the same functions for one of the following: a....

Q: Comparative financial statements for Weller Corporation for the fiscal year ending December

Comparative financial statements for Weller Corporation for the fiscal year ending December 31 appear below. The company did not issue any new common or preferred stock during the year. A total of 800...

Q: Refer to the data in Brief Exercise 14–2 for Weller

Refer to the data in Brief Exercise 14–2 for Weller Corporation. In Brief Exercise 14–2 Comparative financial statements for Weller Corporation for the fiscal year...

Q: Refer to the data in Brief Exercise 14–2 for Weller

Refer to the data in Brief Exercise 14–2 for Weller Corporation. In Brief Exercise 14–2 Comparative financial statements for Weller Corporation for the fiscal year...

Q: State whether each of the following statements is true or false.

State whether each of the following statements is true or false. _______1. Convertible bonds are also known as callable bonds. _______2. The market rate is the rate investors demand for loaning funds....

Q: A The following section is taken from Hardesty’s balance sheet at December

A The following section is taken from Hardesty’s balance sheet at December 31, 2016. Current liabilities Interest payable $ 40,000 Long-term liabilities Bonds payable (8%, due January 1, 2020)...

Q: On October 1, 2016, Kristal Corp. issued $700

On October 1, 2016, Kristal Corp. issued $700,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annu...

Q: Malcolm Company sold $6,000,000, 7%,

Malcolm Company sold $6,000,000, 7%, 15-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on December 31. The bonds were sold at 98. Instructions (a) Prepare the jo...

Q: Bond or debt securities pay a stated rate of interest. This

Bond or debt securities pay a stated rate of interest. This rate of interest is dependent on the risk associated with the investment. Also, bond prices change when the risks associated with those bond...

Q: The following information is taken from Lassen Corp.’s balance sheet

The following information is taken from Lassen Corp.’s balance sheet at December 31, 2016. Interest is payable annually on January 1. The bonds are callable on any annual interest d...

Q: Fong Corporation sold $2,000,000, 7%,

Fong Corporation sold $2,000,000, 7%, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Fong Corporation uses the straight-line method to amortize b...

Q: Jerry Hogan, president of Norwest, Inc., is considering the

Jerry Hogan, president of Norwest, Inc., is considering the issuance of bonds to finance an expansion of his business. He has asked you to do the following: (1) discuss the advantages of bonds over co...

Q: Saylor Co. sold $3,000,000, 8

Saylor Co. sold $3,000,000, 8%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. The company uses straight-line amortization on bond premiums and...

Q: On January 1, 2017, Lachte Corporation issued $1,

On January 1, 2017, Lachte Corporation issued $1,800,000 face value, 5%, 10-year bonds at $1,667,518. This price resulted in an effective-interest rate of 6% on the bonds. Lachte uses the effective-in...

Q: Explain each of these important terms in issuing bonds: (

Explain each of these important terms in issuing bonds: (a) Face value. (b) Contractual interest rate. (c) Bond certificate.

Q: On January 1, 2017, Opal Company issued $2,

On January 1, 2017, Opal Company issued $2,000,000 face value, 7%, 10-year bonds at $2,147,202. This price resulted in a 6% effective-interest rate on the bonds. Opal uses the effective-interest metho...

Q: (a) What is a convertible bond? (b

(a) What is a convertible bond? (b) Discuss the advantages of a convertible bond from the standpoint of the bondholders and of the issuing corporation.

Q: Lee and Jay are discussing how the market price of a bond

Lee and Jay are discussing how the market price of a bond is determined. Lee believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term...

Q: Alpine Company issues $2 million, 10-year, 7

Alpine Company issues $2 million, 10-year, 7% bonds at 99, with interest payable on December 31. The straight-line method is used to amortize bond discount. (a) Prepare the journal entry to record the...

Q: Which accounts are debited and which are credited if a bond issue

Which accounts are debited and which are credited if a bond issue originally sold at a premium is redeemed before maturity at 97 immediately following the payment of interest?

Q: Harvard Inc. issues $4 million, 5-year,

Harvard Inc. issues $4 million, 5-year, 8% bonds at 102, with interest payable on January 1. The straight-line method is used to amortize bond premium. (a) Prepare the journal entry to record the sale...

Q: Presented below is the partial bond discount amortization schedule for Rohr Corp

Presented below is the partial bond discount amortization schedule for Rohr Corp., which uses the effective-interest method of amortization. Instructions (a) Prepare the journal entry to record the p...

Q: Sehr Company issued $500,000, 6%, 30-

Sehr Company issued $500,000, 6%, 30-year bonds on January 1, 2017, at 103. Interest is payable annually on January 1. Sehr uses straight-line amortization for bond premium or discount. Instructions P...

Q: Motley Company issued $300,000, 8%, 15-

Motley Company issued $300,000, 8%, 15-year bonds on December 31, 2016, for $288,000. Interest is payable annually on December 31. Motley uses the straight-line method to amortize bond premium or disc...

Q: Woode Corporation issued $400,000, 7%, 20-

Woode Corporation issued $400,000, 7%, 20-year bonds on January 1, 2017, for $360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1....

Q: Hernandez Company issued $380,000, 7%, 10-

Hernandez Company issued $380,000, 7%, 10-year bonds on January 1, 2017, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1....

Q: Honore Draper is discussing the advantages of the effective interest method of

Honore Draper is discussing the advantages of the effective interest method of bond amortization with her accounting staff. What do you think Honore is saying?

Q: If a 6%, 10-year, $800,000

If a 6%, 10-year, $800,000 bond is issued at face value and interest is paid annually, what is the amount of the interest payment at the end of the first period?

Q: On September 12, the cheapest-to-deliver bond on

On September 12, the cheapest-to-deliver bond on the December Treasury bond futures contract is the 9s of November YY 18. The bond pays interest semiannually on May 15 and November 15. Its price is 12...

Q: A pension fund wants to enter into a six-month equity

A pension fund wants to enter into a six-month equity swap with a notional amount of $60 million. Payments will occur in 90 and 180 days. The swap will allow the fund to receive the return on a stock...

Q: Explain the implied repo rate on a U.S. Treasury

Explain the implied repo rate on a U.S. Treasury bond futures spread position.

Q: Suppose your firm had issued a 12 percent annual coupon, 15

Suppose your firm had issued a 12 percent annual coupon, 15-year bond, callable at par at the eighth year. It is now two years later, so the bonds are not callable for another six years. At this time,...

Q: Consider a call option with an exercise rate of x on an

Consider a call option with an exercise rate of x on an interest rate, which we shall denote as simply L. The underlying rate is an M-day rate and pays off based on 360 days in a year. Now consider a...

Q: Assume that on December 2, YY, the cheapest bond to

Assume that on December 2, YY, the cheapest bond to deliver was the 6 1/4s maturing on August 15, YY 18. The March contract is priced at 112, and the conversion factor is 1.0269. The June futures pric...

Q: In this chapter, there are two equations presented for the implied

In this chapter, there are two equations presented for the implied repo rate related to the following bond futures contracts. Explain these equations and discuss the differences between them

Q: Suppose you are asked to assist in the design of an equity

Suppose you are asked to assist in the design of an equity-linked security. The instrument is a five-year zero coupon bond with a guaranteed return of 1 percent, compounded annually. At the end of fiv...

Q: A convertible bond is a bond that permits the holder to turn

A convertible bond is a bond that permits the holder to turn in the bond and convert it into a certain number of shares of stock. Conversion would, thus, occur only when the stock does well. As a resu...

Q: Suppose the periodic payments made by a CDS buyer to a CDS

Suppose the periodic payments made by a CDS buyer to a CDS seller are worth $1 per $100 notional value of debt per quarter. Explain how this figure is related to the value of the debt and the value of...

Q: A company has assets with a market value of $100.

A company has assets with a market value of $100. It has one outstanding bond issue, a zero coupon bond maturing in two years with a face value of $75. The risk-free rate is 5 percent. The volatility...

Q: On September 26 of a particular year, the March Treasury bond

On September 26 of a particular year, the March Treasury bond futures contract settlement price as 94–22. Compare the following two bonds and determine which is the cheaper bond to deliver. Assume tha...

Q: In this chapter, we obtained the binomial option pricing formula by

In this chapter, we obtained the binomial option pricing formula by hedging a short position in the call option with a long position in stock. An alternative way to do this is to combine the stock and...

Q: Identify and discuss four nontraded delivery options related to U.S

Identify and discuss four nontraded delivery options related to U.S. Treasury bond futures contracts.

Q: It is August 20, and you are trying to determine which

It is August 20, and you are trying to determine which of two bonds is the cheaper bond to deliver on the December Treasury bond futures contract. The futures price is 89 12/32. Assume that delivery w...

Q: Assume that on March 16, the cheapest bond to deliver on

Assume that on March 16, the cheapest bond to deliver on the June Treasury bond futures contract is the 14s, callable in about 19 years and maturing in about 24 years. Coupons are paid on November 15...

Q: On July 1, a portfolio manager holds $1 million face

On July 1, a portfolio manager holds $1 million face value of Treasury bonds, the 11 l/4s maturing in about 29 years. The price is 107 14/32. The bond will need to be sold on August 30. The manager is...

Q: For each of the following situations, determine whether a long or

For each of the following situations, determine whether a long or short hedge is appropriate. Justify your answers. a. A firm anticipates issuing stock in three months. b. An investor plans to buy a...

Q: On March 16, the March Treasury bond futures settlement price was

On March 16, the March Treasury bond futures settlement price was 101 21/32. Assume that the 12 1/2 percent bond maturing in about 22 years is the cheapest bond to deliver. The CF is 1.4639. Assume th...

Q: On January 31, a firm learns that it will have additional

On January 31, a firm learns that it will have additional funds available on May 31. It will use the funds to purchase $5,000,000 par value of the APCO 9 1/2 percent bonds maturing in about 21 years....

Q: The U.K. manager of an international bond portfolio would

The U.K. manager of an international bond portfolio would like to synthetically sell a large position in a French government bond, denominated in euros. The bond is selling at its par value of €46.15...

Q: On March 16, the June Treasury bond futures contract was priced

On March 16, the June Treasury bond futures contract was priced at 100 17/32 and the September contract was at 99 17/32. Determine the implied repo rate on the spread. Assume that the cheapest bond to...

Q: You are the manager of a bond portfolio of $10 million

You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,456. The portfolio has a yield of 12.25 percent and a duration of 8.33. You plan to liquidate the portfolio in s...

Q: For a multicorporate entity, how is the recognition of gains or

For a multicorporate entity, how is the recognition of gains or losses on bond retirement changed when emphasis is placed on the economic entity rather than the legal entity?

Q: When a parent company sells land to a subsidiary at more than

When a parent company sells land to a subsidiary at more than book value, the consolidation entries at the end of the period include a debit to the gain on the sale of land. When a parent purchases th...

Q: What is the effect of eliminating intercompany interest income and interest expense

What is the effect of eliminating intercompany interest income and interest expense on consolidated net income when a loss on bond retirement has been reported in a prior year’s consolidated financial...

Q: A subsidiary purchased bonds of its parent company from a nonaffiliate in

A subsidiary purchased bonds of its parent company from a nonaffiliate in the preceding period, and a gain on bond retirement was reported in the consolidated income statement as a result of the purch...

Q: A parent company purchased its subsidiary’s bonds from a nonaffiliate in the

A parent company purchased its subsidiary’s bonds from a nonaffiliate in the preceding year, and a loss on bond retirement was reported in the consolidated income statement. How will income assigned t...

Q: Shortly after a parent company purchased its subsidiary’s bonds from a nonaffiliate

Shortly after a parent company purchased its subsidiary’s bonds from a nonaffiliate, the subsidiary retired the entire issue. How is the gain or loss on bond retirement reported by the subsidiary trea...

Q: On January 1, 20X4, Passive Heating Corporation paid $104

On January 1, 20X4, Passive Heating Corporation paid $104,000 for $100,000 par value, 9 percent bonds of Solar Energy Corporation. Solar had issued $300,000 of the 10-year bonds on January 1, 20X2, fo...

Q: Assume the same facts as in E8-6 except that the

Assume the same facts as in E8-6 except that the company uses straight-line amortization. Required: Select the correct answer for each of the following questions. What amount of interest expens...

Q: Assume the same facts as in E8-1 and prepare entries

Assume the same facts as in E8-1 and prepare entries using straight-line amortization of bond discount or premium. Data from E8-1: Lamar Corporation owns 60 percent of Humbolt Corporation’s voting s...

Q: Bradley Corporation sold bonds to Flood Company in 20X2 at 90.

Bradley Corporation sold bonds to Flood Company in 20X2 at 90. At the end of 20X4, Century Corporation purchased the bonds from Flood at 105. Bradley then retired the full bond issue on December 31, 2...

Q: Able Company issued $600,000 of 9 percent first mortgage

Able Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchas...

Q: Assume the same facts as in E8-7 but prepare entries

Assume the same facts as in E8-7 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-7: Able Company issued $600,000 of 9 percent first mortgage bonds on J...

Q: Able Company issued $600,000 of 9 percent first mortgage

Able Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchas...

Q: Assume the same facts as in E8-8 but prepare entries

Assume the same facts as in E8-8 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-8: Able Company issued $600,000 of 9 percent first mortgage bonds on J...

Q: Nettle Corporation sold $100,000 par value, 10-

Nettle Corporation sold $100,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay interest semiann...

Q: Farley Corporation owns 70 percent of Snowball Enterprises’ stock. On January

Farley Corporation owns 70 percent of Snowball Enterprises’ stock. On January 1, 20X1, Farley sold $1 million par value, 7 percent (paid semiannually), 20-year, first mortgage bonds to Kling Corporati...

Q: Assume the same facts as in E8-9 but prepare entries

Assume the same facts as in E8-9 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-9: Farley Corporation owns 70 percent of Snowball Enterprises’ stock....

Q: Apple Corporation holds 60 percent of Shortway Publishing Company’s voting shares.

Apple Corporation holds 60 percent of Shortway Publishing Company’s voting shares. Apple issued $500,000 of 10 percent (paid semiannually) bonds with a 10-year maturity on January 1,...

Q: Apple Corporation holds 60 percent of Shortway Publishing Company’s voting shares.

Apple Corporation holds 60 percent of Shortway Publishing Company’s voting shares. Apple issued $500,000 of 10 percent bonds with a 10-year maturity on January 1, 20X2, at 90. On Jan...

Q: Online Enterprises owns 95 percent of Downlink Corporation. On January 1

Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and...

Q: Online Enterprises owns 95 percent of Downlink Corporation. On January 1

Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and...

Q: Bundle Company issued $500,000 par value, 10-

Bundle Company issued $500,000 par value, 10-year bonds at 104 on January 1, 20X3, which Mega Corporation purchased. The coupon rate on the bonds is 11 percent. Interest payments are made semiannually...

Q: Assume the same facts as in E8-12 but prepare entries

Assume the same facts as in E8-12 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-12: Bundle Company issued $500,000 par value, 10-year bonds at 104 on...

Q: Stang Corporation issued to Bradley Company $400,000 par value

Stang Corporation issued to Bradley Company $400,000 par value, 10-year bonds with a coupon rate of 12 percent on January 1, 20X5, at 105. The bonds pay interest semiannually on July 1 and January 1....

Q: Assume the same facts as in E8-13 but prepare entries

Assume the same facts as in E8-13 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-13: Stang Corporation issued to Bradley Company $400,000 par value, 1...

Q: Assume the same facts as in E8-14 except for the

Assume the same facts as in E8-14 except for the changes in the trial balances and assuming the bonds were sold for $82,000, but prepare entries using straight-line amortization of bond discount or pr...

Q: Wood Corporation owns 70 percent of Carter Company’s voting shares. On

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $600,000 at 98. Wood purchased $400,000 par value of the bonds; the remain...

Q: Assume the same facts as in E8-15 except for the

Assume the same facts as in E8-15 except for the changes in the trial balances, but prepare entries using straight-line amortization of bond discount or premium. Required: Record the journal e...

Q: On January 1, 20X1, Fern Corporation paid Morton Advertising $

On January 1, 20X1, Fern Corporation paid Morton Advertising $116,200 to acquire 70 percent of Vincent Company’s stock. Fern also paid $45,000 to acquire $50,000 par value 8 percent,...

Q: On January 1, 20X1, Fern Corporation paid Morton Advertising $

On January 1, 20X1, Fern Corporation paid Morton Advertising $116,200 to acquire 70 percent of Vincent Company’s stock. Fern also paid $45,000 to acquire $50,000 par value 8 percent,...

Q: Gross Corporation issued $500,000 par value 10-year

Gross Corporation issued $500,000 par value 10-year bonds at 104 on January 1, 20X1, which Independent Corporation purchased. On July 1, 20X5, Rupp Corporation purchased $200,000 of Gross bonds from I...

Q: Gross Corporation issued $500,000 par value, 10-

Gross Corporation issued $500,000 par value, 10-year bonds at 104 on January 1, 20X1, which Independent Corporation purchased. On January 1, 20X5, Rupp Corporation purchased $200,000 of Gross bonds fr...

Q: Amazing Corporation purchased $100,000 par value bonds of its

Amazing Corporation purchased $100,000 par value bonds of its subsidiary, Broadway Company, on December 31, 20X5, from Lemon Corporation. The 10-year bonds bear a 9 percent coupon rate, and Broadway o...

Q: Assume the same facts as in E8-3 but prepare entries

Assume the same facts as in E8-3 but prepare entries using straight-line amortization of bond discount or premium. Data from E8-3: Wood Corporation owns 70 percent of Carter Company’s voting shares....

Q: Amazing Corporation purchased $100,000 par value bonds of its

Amazing Corporation purchased $100,000 par value bonds of its subsidiary, Broadway Company, on December 31, 20X5, from Lemon Corporation for $102,800. The 10-year bonds bear a 9 percent coupon rate, a...

Q: Bath Corporation acquired 80 percent of Stang Brewing Company’s stock on January

Bath Corporation acquired 80 percent of Stang Brewing Company’s stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was eq...

Q: Bath Corporation acquired 80 percent of Stang Brewing Company’s stock on January

Bath Corporation acquired 80 percent of Stang Brewing Company’s stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was eq...

Q: Bliss Perfume Company issued $300,000 of 10 percent bonds

Bliss Perfume Company issued $300,000 of 10 percent bonds on January 1, 20X2, at 110. The bonds mature 10 years from issue and have semiannual interest payments on January 1 and July 1. Parsons Corpor...

Q: Bliss Perfume Company issued $300,000 of 10 percent bonds

Bliss Perfume Company issued $300,000 of 10 percent bonds on January 1, 20X2, at 110. The bonds mature 10 years from issue and have semiannual interest payments on January 1 and July 1. Parsons Corpor...

Q: Farflung Corporation has in excess of 60 subsidiaries worldwide. It owns

Farflung Corporation has in excess of 60 subsidiaries worldwide. It owns 65 percent of the voting common stock of Micro Company and 80 percent of the shares of Eagle Corporation. Micro sold $400,000 p...

Q: Mainstream Corporation holds 80 percent of Offenberg Company’s voting shares, acquired

Mainstream Corporation holds 80 percent of Offenberg Company’s voting shares, acquired on January 1, 20X1, at underlying book value. On January 1, 20X4, Mainstream purchased Offenber...

Q: Offenberg Company issued $100,000 of 10 percent bonds on

Offenberg Company issued $100,000 of 10 percent bonds on January 1, 20X1, at 120. The bonds mature in 10 years and pay 10 percent interest annually on December 31. Mainstream Corporation holds 80 perc...

Q: Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock

Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock on J anuary 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equa...

Q: Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock

Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal...

Q: Stellar Corporation purchased bonds of its subsidiary from a nonaffiliate during 20X6

Stellar Corporation purchased bonds of its subsidiary from a nonaffiliate during 20X6. Although Stellar purchased the bonds at par value, a loss on bond retirement is reported in the 20X6 consolidated...

Q: Lance Corporation purchased 75 percent of Avery Company’s common stock at underlying

Lance Corporation purchased 75 percent of Avery Company’s common stock at underlying book value on January 1, 20X3. At that date, the fair value of the noncontrolling interest was eq...

Q: Lance Corporation purchased 75 percent of Avery Company’s common stock at underlying

Lance Corporation purchased 75 percent of Avery Company’s common stock at underlying book value on January 1, 20X3. At that date, the fair value of the noncontrolling interest was eq...

Q: On January 1, 20X5, Pond Corporation purchased 75 percent of

On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company’s stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to...

Q: On January 1, 20X5, Pond Corporation purchased 75 percent of

On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company’s stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to...

Q: Panther Enterprises owns 80 percent of Grange Corporation’s voting stock. Panther

Panther Enterprises owns 80 percent of Grange Corporation’s voting stock. Panther acquired the shares on January 1, 20X4, for $234,500. On that date, the fair value of the noncontrol...

Q: Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock

Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock on December 31, 20X5, for $1,152,000. At that date, the fair value of the noncontroll...

Q: Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock

Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock on December 31, 20X5, for $1,152,000. At that date, the fair value of the noncontroll...

Q: Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock

Topp Manufacturing Company acquired 90 percent of Bussman Corporation’s outstanding common stock on December 31, 20X5, for $1,152,000. At that date, the fair value of the noncontroll...

Q: Snerd Corporation’s controller is having difficulty explaining the impact of several of

Snerd Corporation’s controller is having difficulty explaining the impact of several of the company’s intercorporate bond transactions. Required: Snerd receives interest payments in excess of t...

Q: Block Corporation was created on January 1, 20X0, to develop

Block Corporation was created on January 1, 20X0, to develop computer software. On January 1, 20X5, Foster Company acquired 90 percent of Block’s common stock at its underlying book...

Q: Select the correct answer for each of the following questions.

Select the correct answer for each of the following questions. Wagner, a holder of a $1,000,000 Palmer Inc. bond, collected the interest due on March 31, 20X8, and then sold the bond to Seal Inc. for...

Q: When is a gain or loss on bond retirement included in the

When is a gain or loss on bond retirement included in the consolidated income statement?

Q: What is meant by a constructive bond retirement in a multicorporate setting

What is meant by a constructive bond retirement in a multicorporate setting? How does a constructive bond retirement differ from an actual bond retirement?

Q: When a bond issue has been placed directly with an affiliate,

When a bond issue has been placed directly with an affiliate, what account balances will be stated incorrectly in the consolidated statements if the intercompany bond ownership is not eliminated in pr...

Q: When an affiliate’s bonds are purchased from a nonaffiliate during the period

When an affiliate’s bonds are purchased from a nonaffiliate during the period, what balances will be stated incorrectly in the consolidated financial statements if the intercompany bond ownership is n...

Q: Nettle Corporation sold $100,000 par value, 10-

Nettle Corporation sold $100,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay interest semiann...

Q: French energy giant GDF Suez recently issued a zero coupon bond.

French energy giant GDF Suez recently issued a zero coupon bond. This bond issuance garnered attention because it was the first time in 14 years that a zero coupon bond had been issued in euros. The z...

Q: Electrolux Corporation manufactures electrical test equipment. The company’s board of directors

Electrolux Corporation manufactures electrical test equipment. The company’s board of directors authorized a bond issue on January 1 of this year with the following terms: Face (par) value: $800,000 C...

Q: On January 1 of this year, Barnett Corporation sold bonds with

On January 1 of this year, Barnett Corporation sold bonds with a face value of $500,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest annually on December 31. Barnett u...

Q: What is the formula used for calculating the cash payment bond investors

What is the formula used for calculating the cash payment bond investors will receive for interest each period? What is the formula used to calculate interest expense each period?

Q: When market interest rates increase, do bond prices increase or decrease

When market interest rates increase, do bond prices increase or decrease?

Q: Differentiate between a bond coupon rate and the market rate of interest

Differentiate between a bond coupon rate and the market rate of interest.

Q: Explain what determines whether a bond is issued at a discount or

Explain what determines whether a bond is issued at a discount or a premium.

Q: Annual interest expense for a single bond issue continues to increase over

Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this? a. The market rate of interest has increased since the bonds wer...

Q: When using the effective-interest method of amortization, the book

When using the effective-interest method of amortization, the book value of a bond changes by what amount on each interest payment date? a. Interest expense b. Cash interest payment c. The difference...

Q: A bond with a face value of $100,000 has

A bond with a face value of $100,000 has a coupon rate of 8 percent. The bond matures in 10 years. When the bond is issued, the market rate of interest is 10 percent. What amount will investors pay fo...

Q: Which of the following is false when a bond is issued at

Which of the following is false when a bond is issued at a premium? a. The bond will issue for an amount above its par value. b. Bonds payable will be credited for an amount greater than the bond’s fa...

Q: A bond with a face value of $100,000 was

A bond with a face value of $100,000 was issued for $93,500 on January 1 of this year. The stated rate of interest was 8 percent and the market rate of interest was 10 percent when the bond was sold....

Q: To determine whether a bond will be sold at a premium,

To determine whether a bond will be sold at a premium, at a discount, or at face value, one must know which of the following pairs of information? a. Face value and the coupon rate on the date the bon...

Q: When using the effective-interest method of amortization, interest expense

When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by the a. Face value of the bonds. b. Coupon rate stated in the bond certificate...

Q: A bond with a face value of $100,000 is

A bond with a face value of $100,000 is sold on January 1. The bond has a coupon rate of 10 percent and matures in 10 years. When the bond was issued, the market rate of interest was 10 percent. On De...

Q: For each of the following items, specify whether the information would

For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, or the notes to the statements. 1. The amount o...

Q: In what section of the statement of cash flows would you find

In what section of the statement of cash flows would you find cash paid for principal when a bond matures? In what section would you find cash paid for interest each period?

Q: Determine whether each of the following would be reported in the financing

Determine whether each of the following would be reported in the financing activities section of the statement of cash flows and, if so, specify whether it is a cash inflow or outflow. 1. Sale of bond...

Q: Differentiate between a bond indenture and a bond prospectus.

Differentiate between a bond indenture and a bond prospectus.

Q: What is a bond covenant?

What is a bond covenant?

Q: On January 1 of this year, Ikuta Company issued a bond

On January 1 of this year, Ikuta Company issued a bond with a face value of $100,000 and a coupon rate of 5 percent. The bond matures in three years and pays interest every December 31. When the bond...

Q: Santa Corporation issued a bond on January 1 of this year with

Santa Corporation issued a bond on January 1 of this year with a face value of $1,000. The bond’s coupon rate is 6 percent and interest is paid once a year on December 31. The bond m...

Q: On January 1 of this year, Houston Company issued a bond

On January 1 of this year, Houston Company issued a bond with a face value of $10,000 and a coupon rate of 5 percent. The bond matures in three years and pays interest every December 31. When the bond...

Q: You are a personal financial planner working with a married couple in

You are a personal financial planner working with a married couple in their early 40s who have decided to invest $100,000 in corporate bonds. You have found two bonds that you think will interest your...

Q: Park Corporation is planning to issue bonds with a face value of

Park Corporation is planning to issue bonds with a face value of $600,000 and a coupon rate of 7.5 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31....

Q: If interest rates fell after the issuance of a bond and the

If interest rates fell after the issuance of a bond and the company decided to retire the debt early, would you expect the company to report a gain or loss on debt retirement? How would the company’s...

Q: Several years ago, Walters Company issued bonds with a face value

Several years ago, Walters Company issued bonds with a face value of $1,000,000 at par. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 percent...

Q: Several years ago, Nicole Company issued bonds with a face value

Several years ago, Nicole Company issued bonds with a face value of $1,000,000 for $945,000. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 pe...

Q: Several years ago, Nicole Company issued bonds with a face value

Several years ago, Nicole Company issued bonds with a face value of $1,000,000 for $945,000. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 pe...

Q: A number of events over the life of a bond have effects

A number of events over the life of a bond have effects that are reported on the statement of cash flows. For each of the following events, determine whether the event affects the statement of cash fl...

Q: A company’s 6% coupon rate, semiannual payment, $1

A company’s 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $515.16. The company’s federal plus- state tax rate is 40%. What is the firm’s after-...

Q: During the last few years, Harry Davis Industries has been too

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the co...

Q: Derek Lee, vice president of finance for Atlanta Company, has

Derek Lee, vice president of finance for Atlanta Company, has recently been asked to discuss with the company’s division controllers the proper accounting for extraordinary items. Derek Lee prepared t...

Q: Presented below are the captions of Nikos Company’s balance sheet.

Presented below are the captions of Nikos Company’s balance sheet. (a) Current assets. (b) Investments. (c) Property, plant, and equipment. (d) Intangible assets. (e) Other assets. (f) Current liabil...

Q: The bookkeeper for Garfield Company has prepared the following balance sheet as

The bookkeeper for Garfield Company has prepared the following balance sheet as of July 31, 2012. The following additional information is provided. 1. Cash includes $1,200 in a petty cash fund and $...

Q: Presented below is the balance sheet of Sargent Corporation for the current

Presented below is the balance sheet of Sargent Corporation for the current year, 2012. The following information is presented. 1. The current assets section includes: cash $150,000, accounts receiv...

Q: Below are the titles of a number of debit and credit accounts

Below are the titles of a number of debit and credit accounts as they might appear on the balance sheet of Hayduke Corporation as of October 31, 2012. Instructions Select the current asset and curre...

Q: Early in January 2013, Hopkins Company is preparing for a meeting

Early in January 2013, Hopkins Company is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2012. Except...

Q: Determine taxable income in each of the following instances. Assume that

Determine taxable income in each of the following instances. Assume that the corporation is a C corporation and that book income is before any income tax expense. a. Book income of $50,000 including c...

Q: Refer to Problem 54. Determine the amount of taxable income and

Refer to Problem 54. Determine the amount of taxable income and separately stated items in each case, assuming the corporation was a Subchapter S corporation. Data from question 54: Determine taxable...

Q: Refer to Problem 58. Determine the amount of taxable income and

Refer to Problem 58. Determine the amount of taxable income and separately stated items in each case, assuming the corporation is a Subchapter S corporation. Ignore any carryforward items. Data from...

Q: Go to the IRS Web page (www.irs.gov

Go to the IRS Web page (www.irs.gov) and print page 5 of a Form 1120. Complete Schedule M-1 for each of the following cases: a. Corporate financial statement net income of $52,000 including tax expe...

Q: Using the information from Problem 54, calculate the amount of tax

Using the information from Problem 54, calculate the amount of tax liability in each instance. Data from question 54: Determine taxable income in each of the following instances. Assume that the cor...

Q: As the recently appointed auditor for Hillary Corporation, you have been

As the recently appointed auditor for Hillary Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2012, are prepared. The controller for H...

Q: Laserwords Inc. is a book distributor that had been operating in

Laserwords Inc. is a book distributor that had been operating in its original facility since 1985. The increase in certification programs and continuing education requirements in several professions h...

Q: Presented below are three unrelated situations. (a) Ron

Presented below are three unrelated situations. (a) Ron Stein Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit o...

Q: Presented below are a number of independent situations. Instructions

Presented below are a number of independent situations. Instructions For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, expla...

Q: What would you pay for a $100,000 debenture bond

What would you pay for a $100,000 debenture bond that matures in 15 years and pays $10,000 a year in interest if you wanted to earn a yield of: (a) 8%? (b) 10%? (c) 12%?

Q: We are studying mutual bond funds for the purpose of investing in

We are studying mutual bond funds for the purpose of investing in several funds. For this particular study, we want to focus on the assets of a fund and its five-year performance. The question is: Can...

Q: Refer to Exercise 18. The regression equation is ŷ = 9

Refer to Exercise 18. The regression equation is ŷ = 9.9198 − 0.00039x, the sample size is 9, and the standard error of the slope is 0.0032. Use the .05 significance le...

Q: The Alpha One Software Corporation was organized to develop software products that

The Alpha One Software Corporation was organized to develop software products that would provide Internet-based firms with information about their customers. As a result of initial success, the ventu...

Q: What is a bond rating?

What is a bond rating?

Q: Ray Bond sells handcrafted yard decorations at county fairs. The variable

Ray Bond sells handcrafted yard decorations at county fairs. The variable cost to make these is $20 each, and he sells them for $50. The cost to rent a booth at the fair is $150. How many of these mus...

Q: Ray Bond, from Problem 1-16, is trying to

Ray Bond, from Problem 1-16, is trying to find a new supplier that will reduce his variable cost of production to $15 per unit. If he was able to succeed in reducing this cost, what would the break-ev...

Q: You have completed the field work in connection with your audit of

You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2012. The balance sheet accounts at the beginning and end of the year are shown...

Q: Your firm has been engaged to examine the financial statements of AlmadenCorporation

Your firm has been engaged to examine the financial statements of AlmadenCorporation for the year 2012. The bookkeeper who maintains the financial records has prepared all the unaudited financial stat...

Q: Waubansee Corp. uses the direct method to prepare its statement of

Waubansee Corp. uses the direct method to prepare its statement of cash flows. Relevant balances for Waubansee at December 31, 2012 and 2011, are as follows. Additional information: 1. Waubansee pur...

Q: Following are selected balance sheet accounts of Sander Bros. Corp.

Following are selected balance sheet accounts of Sander Bros. Corp. at December 31, 2012 and 2011, and the increases or decreases in each account from 2011 to 2012. Also presented is selected income s...

Q: Allman Company, which began operations at the beginning of 2010,

Allman Company, which began operations at the beginning of 2010, produces various products on a contract basis. Each contract generates a gross profit of $80,000. Some of Allman’s contracts provide fo...

Q: In this simulation, you are asked questions about changes in accounting

In this simulation, you are asked questions about changes in accounting principle. Prepare responses to all parts.

Q: Maggie Becker, age 24, is a marketing manager for a

Maggie Becker, age 24, is a marketing manager for a small chain of shops in Halifax. Recently, Maggie’s wealthy uncle passed away and left her, his only niece, $100 000. Maggie considers her current s...

Q: Doyle Company issued $500,000 of 10-year,

Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, 2018. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested t...

Q: Milan Company issued bonds with a face value of $200,

Milan Company issued bonds with a face value of $200,000 on January 1, 2018. The bonds had a 7 percent stated rate of interest and a six-year term. The bonds were issued at face value. Interest is pay...

Q: Diaz Company issued $180,000 face value of bonds on

Diaz Company issued $180,000 face value of bonds on January 1, 2018. The bonds had a 7 percent stated rate of interest and a five-year term. Interest is paid in cash annually, beginning December 31, 2...

Q: Compute the cash proceeds from bond issues under the following terms.

Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. a. Pear, Inc. issued $400,000 of 10-year, 8 percent bonds...

Q: The Square Foot Grill, Inc. issued $200,000

The Square Foot Grill, Inc. issued $200,000 of 10-year, 6 percent bonds on January 1, 2018, at 102. Interest is payable in cash annually on December 31. The straight-line method is used for amortizati...

Q: On January 1, 2018, Parker Company issued bonds with a

On January 1, 2018, Parker Company issued bonds with a face value of $80,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of ea...

Q: On January 1, 2018, Hart Company issued bonds with a

On January 1, 2018, Hart Company issued bonds with a face value of $60,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each...

Q: Indicate whether a bond will sell at a premium (P),

Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions. a. The stated rate of interest is higher than the market rate. b. The market r...

Q: For each of the following situations, calculate the amount of bond

For each of the following situations, calculate the amount of bond discount or premium, if any. a. Gray Co. issued $80,000 of 6 percent bonds at 101¼. b. Bush, Inc. issued $200,000 of 10-year, 6 perce...

Q: The following three companies issued the following bonds: 1. Lot

The following three companies issued the following bonds: 1. Lot, Inc. issued $100,000 of 8 percent, five-year bonds at 102¼ on January 1, 2018. Interest is payable annually on December 31. 2. Max, In...

Q: During 2018 and 2019, Kale Co. completed the following transactions

During 2018 and 2019, Kale Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31. 2018 Mar. 1 Issued $200,000 of 8 year, 6 percent bonds fo...

Q: On January 1, 2018, Reese Incorporated issued bonds with a

On January 1, 2018, Reese Incorporated issued bonds with a face value of $120,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31...

Q: Show the effect of each of the following independent accounting events on

Show the effect of each of the following independent accounting events on the financial statements using a horizontal statements model like the following one. Use + for increase, − f...

Q: When the effective interest rate is higher than the stated interest rate

When the effective interest rate is higher than the stated interest rate on a bond issue, will the bond sell at a discount or premium? Why?

Q: If a bond is selling at 97½, how much cash will

If a bond is selling at 97½, how much cash will the company receive from the sale of a $1,000 bond?

Q: How is the carrying value of a bond computed?

How is the carrying value of a bond computed?

Q: The Bender Construction Co. is involved in constructing municipal buildings and

The Bender Construction Co. is involved in constructing municipal buildings and other structures that are used primarily by city and state municipalities. This requires developing legal documents, dra...

Q: V. S. Industries in Parkersburg, West Virginia, is

V. S. Industries in Parkersburg, West Virginia, is a small manufacturer of military-grade hybrid microcircuits. One of the many quality assurance procedures required by Military Standard 883 (MILSTD...

Q: When a subsidiary’s convertible bond is treated as common stock in computing

When a subsidiary’s convertible bond is treated as common stock in computing the subsidiary’s diluted EPS, how is the interest on the bond treated in computing diluted consolidated EPS

Q: Using the data presented in P10-20: Prepare a

Using the data presented in P10-20: Prepare a worksheet to develop a consolidated statement of cash flows for 20X4 using the direct method of computing cash flows from operations. Prepare a...

Q: Rainy Day Insurance Company maintains an extensive portfolio of bond investments classified

Rainy Day Insurance Company maintains an extensive portfolio of bond investments classified as available-for-sale securities under ASC 320. The bond investments have a variety of fixed interest rates...

Q: The following 20X2 consolidated statement of cash flows is presented for Acme

The following 20X2 consolidated statement of cash flows is presented for Acme Printing Company and its subsidiary, Jones Delivery: Acme Printing acquired 60 percent of the voting shares of Jones in...

Q: Power Corporation acquired 100 percent of Light Corporation in a nontaxable transaction

Power Corporation acquired 100 percent of Light Corporation in a nontaxable transaction. The following selected information is available for Light Corporation at the acquisition date: Light Corporat...

Q: Adjusted account balances and supplemental information for Brockbank Research Corp. as

Adjusted account balances and supplemental information for Brockbank Research Corp. as of December 31, 2013, are as follows: Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....

Q: The causes and consequences of the global financial crisis (GFC)

The causes and consequences of the global financial crisis (GFC) are numerous and remain hotly debated. One catalyst was clearly the collapse of the U.S. housing market in 2007–2008. The Federal Reser...

Q: A corporation issues $40,000,000 of 6%

A corporation issues $40,000,000 of 6% bonds to yield an effective interest rate of 8%. a. Was the amount of cash received from the sale of the bonds more or less than $40,000,000? b. Identify the fol...

Q: The following data relate to an $8,000,000

The following data relate to an $8,000,000, 7% bond issue for a selected semiannual interest period: a. Were the bonds issued at a discount or at a premium? b. What expense account is affected by th...

Q: BSF Co., which produces and sells skiing equipment, is financed

BSF Co., which produces and sells skiing equipment, is financed as follows: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that t...

Q: Based on the data in Exercise E8-1, discuss factors

Based on the data in Exercise E8-1, discuss factors other than earnings per share that should be considered in evaluating such financing plans. Data from Exercise 8-1: BSF Co., which p...

Q: The bond indenture for the 10-year, 8% debenture

The bond indenture for the 10-year, 8% debenture bonds dated January 2, 20Y8, required working capital of $200,000, a current ratio of 2.0, and a quick ratio of 1.0 at the end of each calendar year un...

Q: Living Smart Inc. has decided to expand its operations to owning

Living Smart Inc. has decided to expand its operations to owning and operating long-term health care facilities. The following is an excerpt from a conversation between the chief executive officer, Ma...

Q: You hold a 30% common stock interest in the family-

You hold a 30% common stock interest in the family-owned business, a vending machine company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of $6,0...

Q: Three different plans for financing a $5,000,000

Three different plans for financing a $5,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or...

Q: The James Bond Fund is a mutual fund (open-end

The James Bond Fund is a mutual fund (open-end investment company) with an objective of maximizing income from a widely diversified corporate bond portfolio. The fund has a policy of remaining investe...

Q: Keystone Manufacturing, Inc., is analyzing a new bid to supply

Keystone Manufacturing, Inc., is analyzing a new bid to supply the company with electronic control systems. Alpha Corporation has been supplying the systems and Keystone is satisfied with its performa...

Q: Power Brokers, Inc. (PBI), a discount brokerage firm

Power Brokers, Inc. (PBI), a discount brokerage firm, is contemplating opening a new regional office in Providence, Rhode Island. An accounting cost analysis of monthly operating costs at a dozen of i...

Q: Several companies have learned that a well-funded and comprehensive employee

Several companies have learned that a well-funded and comprehensive employee benefits package constitutes an important part of the compensation plan needed to attract and retain key personnel. An empl...

Q: The U.S. parent company is preparing its consolidated financial

The U.S. parent company is preparing its consolidated financial statements for December 31, 20X4. The foreign company’s local currency (LCU) is the functional currency. Information i...

Q: Select the correct answer for each of the following questions.

Select the correct answer for each of the following questions. According to ASC 270 and 740, income tax expense in an income statement for the first interim period of an enterpriseâ€...

Q: Carver Department Stores, Inc., constructs its own stores. In

Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct its...

Q: The balance sheet for The Itex Corporation on December 31, 2012

The balance sheet for The Itex Corporation on December 31, 2012, includes the following cash and receivables balances. Current liabilities reported in the December 31, 2012, balance sheet included:...

Q: Jason Bond Company operates two restaurants, one in Valencia and one

Jason Bond Company operates two restaurants, one in Valencia and one in Saugus. The operations and cash flows of each of the two restaurants are clearly distinguishable. During 2013, Jason Bond decide...

Q: Comparative balance sheet data for the partnership of Bond and Wallin follow

Comparative balance sheet data for the partnership of Bond and Wallin follow. Net income for the year was $22,000, and this was transferred in equal amounts to the partners’ capita...

Q: Choose the best answer. 1. Under GASB standards,

Choose the best answer. 1. Under GASB standards, which of the following would be considered an example of an intangible asset? a. A lake located on city property. b. Water rights associated with the s...

Q: Choose the best answer. 1. Which of the following

Choose the best answer. 1. Which of the following would not be considered a general long-term liability? a. T he estimated liability to clean up the hazardous waste storage sites of the cityâ
...

Q: You are a town council member in the seaside town of Pleasantville

You are a town council member in the seaside town of Pleasantville. Poor economic conditions and unusually severe weather conditions have affected tourism in the town, leading to significantly reduced...

Q: During FY 2017, the voters of Surprise County approved construction of

During FY 2017, the voters of Surprise County approved construction of a $21 million police facility and an $11 million fire station to accommodate the county’s population growth. The construction wil...

Q: Residents from the Town of Mountain View authorized a $5,

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Following are a number of unrelated transactions for the Village of Centerville, some of which affect governmental activities at the government-wide level. None of the transactions has been recorded y...

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In July 1, 2016, the first day of its 2017 fiscal year, the City of Nevin issued at par $2,000,000 of 6 percent term bonds to construct a new city office building. The bonds mature in five years on Ju...

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Brown County operates a solid waste landfill for the citizens of the county. The following events occurred during the county’s fiscal year ended September 30, 2017. 1. The county paid interest costs o...

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Following is the June 30, 2017, statement of net position for the City of Bay Lake Water Utility Fund. Required: a. For fiscal year 2017, prepare general journal entries for the Water Utility Fund u...

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Residents of Green Acres, a gated community located in the City of Foothills, voted to form a local improvement district to fund the construction of a neighborhood park. The city agreed to administe...

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In 2017, Riverside began work on an outdoor amphitheater and concession stand at the city’s park. It is to be financed by a $3,500,000 bond issue and supplemented by a $500,000 General Fund transfer....

Q: A Treasury bond futures price is 103-12. The prices

A Treasury bond futures price is 103-12. The prices of three deliverable bonds are 115-06, 135-12, and 155-28. Their conversion factors are 1.0679, 1.2264, and 1.4169, respectively. Which bond is chea...

Q: It is March 10, 2017. The cheapest-to-

It is March 10, 2017. The cheapest-to-deliver bond in a December 2017 Treasury bond futures contract is an 8% coupon bond, and delivery is expected to be made on December 31, 2017. Coupon payments on...

Q: On June 25, 2017, the futures price for the June

On June 25, 2017, the futures price for the June 2017 bond futures contract is 118-23. (a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of 10%. (b) Calculat...

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A portfolio manager plans to use a Treasury bond futures contract to hedge a bond portfolio over the next 3 months. The portfolio is worth $100 million and will have a duration of 4.0 years in 3 month...

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A bank decides to create a five-year principal-protected note on a non-dividend-paying stock by offering investors a zero-coupon bond plus a bull spread created from calls. The risk-free rate is 4% an...

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A company has a long position in a 2-year bond and a 3-year bond, as well as a short position in a 5-year bond. Each bond has a principal of $100 and pays a 5% coupon annually. Calculate the company’s...

Q: It is April 7, 2017. The quoted price of a

It is April 7, 2017. The quoted price of a U.S. government bond with a 6% per annum coupon (paid semiannually) is 120-00. The bond matures on July 27, 2033. What is the cash price? How does your answe...

Q: A bond issued by Standard Oil some time ago worked as follows

A bond issued by Standard Oil some time ago worked as follows. The holder received no interest. At the bond’s maturity the company promised to pay $1,000 plus an additional amount based on the price o...

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Suppose that x is the yield on a perpetual government bond that pays interest at the rate of $1 per annum. Assume that x is expressed with continuous compounding, that interest is paid continuously on...

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Some time ago a company entered into a forward contract to buy £1 million for $1.5 million. The contract now has 6 months to maturity. The daily volatility of a 6-month zero-coupon sterling bond (when...

Q: Suppose that 6-month, 12-month, 18-

Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Estimate the cash price of a bond...

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Q: Suppose that the Treasury bond futures price is 101-12.

Suppose that the Treasury bond futures price is 101-12. Which of the following four bonds is cheapest to deliver?

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Q: Why are options on bond futures more actively traded than options on

Why are options on bond futures more actively traded than options on bonds?

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In the 1980s, Bankers Trust developed index currency option notes (ICONs). These were bonds in which the amount received by the holder at maturity varied with a foreign exchange rate. One example was...

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The following table gives the prices of bonds: (a) Calculate zero rates for maturities of 6 months, 12 months, 18 months, and 24 months. (b) What are the forward rates for the following periods: 6 mon...

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Q: Suppose that x is the yield to maturity with continuous compounding on

Suppose that x is the yield to maturity with continuous compounding on a zero-coupon bond that pays off $1 at time T. Assume that x follows the process
where a,
, and s are positive constants and d...

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A 5-year bond provides a coupon of 5% per annum payable semiannually. Its price is 104. What is the bond’s yield? You may find Excel’s Solver useful.

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An index provides a dividend yield of 1% and has a volatility of 20%. The risk-free interest rate is 4%. How long does a principal-protected note, created as in Example 12.1, have to last for it to be...

Q: Think of one of your favorite places to shop. How does

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On January 1, 201X, Lonny Corporation sold $400,000 of 10%, 10-year bonds at 97. Interest is to be paid on June 30 and December 31. The straightline method of amortizing the discount is used. Prepare...

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On May 1, 201X, Lance Corporation issued $1,000,000 of 9%, 20-year bonds at 103. The interest is payable on November 1 and May 1. The premium is amortized by the straight-line method. Prepare an amort...

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On January 1, 201X, Fish Corporation issued $300,200 of 11%, 10-year bonds for $267,192, yielding a market rate of 13%. Interest is paid on July 1 and December 31. Fish uses the interest method to amo...

Q: On May 1, 201X, Lexington Corporation issued $180,

On May 1, 201X, Lexington Corporation issued $180,000 of 10%, 5-year bonds for $194,679, yielding a market rate of 8%. Interest is paid on November 1 and May 1. Lexington Corporation uses the interest...

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Facts: Bond issue: $150,000, 9%, 13-year bonds; selling price of bonds $129,569; market rate 11%. Use the interest method. Calculate the following: a. Carrying value at beginning of period b. Interes...

Q: Facts: Bond issue: $95,000, 13%,

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On January 1, 201X, Langston Corporation sold $450,000 of 9%, 10-year bonds at 97. Interest is to be paid on June 30 and December 31. The straightline method of amortizing the discount is used. Prepar...

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On May 1, 201X, Lance Corporation issued $900,000 of 15%, 20-year bonds at 102. The interest is payable on November 1 and May 1. The premium is amortized by the straight-line method. Prepare an amorti...

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On January 1, 201X, Austin Corporation issued $300,900 of 11%, 10-year bonds for $252,958, yielding a market rate of 14%. Interest is paid on July 1 and December 31. Austin uses the interest method to...

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On April 1, 201X, Plimpton Corporation issued $210,000 of 10%, 5-year bonds for $227,126, yielding a market rate of 8%. Interest is paid on October 1 and April 1. Plimpton Corporation uses the interes...

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Explain the selling price of a bond quoted at 99.

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Q: From the following, prepare the long-term liabilities section of

From the following, prepare the long-term liabilities section of a balance sheet:

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Q: Journalize the following transactions: a. Set up a

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Q: Redo Concept Check 2 with the straight-line method, assuming

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Q: From Concept Check 4, record the March 31 semiannual payment and

From Concept Check 4, record the March 31 semiannual payment and amortization of Premium on Bonds Payable. Concept Check 4: Redo Concept Check 2 with the straight-line method, assuming that the bond...

Q: From Concept Check 6, record a journal entry for the first

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Q: From Concept Check 8, record the journal entry for the first

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Q: You are planning to save for retirement over the next 30 years

You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. The return of the stock account is e...

Q: How are the proceeds from a bond issue accounted for in governmental

How are the proceeds from a bond issue accounted for in governmental funds? Where are these proceeds reported on the governmental funds’ statement of revenues, expenditures, and changes in fund balanc...

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The following information relates to actual results from Central Town’s general fund for the year ended December 31, 20X1: • Other cash receipts include a count...

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All things being equal, would you expect to receive a higher or lower interest payment if a bond had a call provision?

Q: Twice Lucky, Inc. was planning a 10-year

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Q: Consider the bonds in question 5. Suppose interest rates decline,

Consider the bonds in question 5. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond? (Consider the sem...

Q: Consider two bonds, Bond C and Bond D, both

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Q: Suppose the current long-term government bond yield is 2 percent

Suppose the current long-term government bond yield is 2 percent and the estimated market risk premium is 5 percent. Fastest Company’s beta is estimated to be 1.15. Using CAPM, estimate Fastest Compan...

Q: How would your answer in question 13 change if the current long

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Q: What is wrong with the simple view that it is cheaper to

What is wrong with the simple view that it is cheaper to issue a bond with a warrant or a convertible feature because the required coupon is lower?

Q: Sportime Fitness Center, Inc., issued convertible bonds with a conversion

Sportime Fitness Center, Inc., issued convertible bonds with a conversion price of $49. The bonds are available for immediate conversion. The current price of the company’s common stock is $43 per sha...

Q: You find a zero coupon bond with a par value of $

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Agency Costs Fountain Corporation’s economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the co...

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Q: You own a callable, convertible bond with a conversion ratio of

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Q: A convertible bond with a par value of $1,000

A convertible bond with a par value of $1,000 has a conversion ratio of 19.2. What is the conversion price?

Q: Vital Silence Corp. has just issued a 30-year callable

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Q: What happens to the price of a convertible bond if interest rates

What happens to the price of a convertible bond if interest rates increase?

Q: If Wild Widgets, Inc., were an all-equity company

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt–equity ratio of .40. The expected return on the market portfolio is 11 percent, and Treasu...

Q: The following Treasury bond quote appeared in The Wall Street Journal on

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What are the main features of a corporate bond that would be listed in the indenture?

Q: What are the implications for bond investors of the lack of transparency

What are the implications for bond investors of the lack of transparency in the bond market?

Q: You purchased a zero coupon bond one year ago for $160

You purchased a zero coupon bond one year ago for $160.53. The market interest rate is now 7.5 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total retur...

Q: Hannon Home Products, Inc., recently issued $2 million worth

Hannon Home Products, Inc., recently issued $2 million worth of 3 percent convertible debentures. Each convertible bond has a face value of $1,000. Each convertible bond can be converted into 23.50 sh...

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You have been hired to value a new 20-year callable, convertible bond. The bond has a 5.8 percent coupon rate, payable annually. The conversion price is $150, and the stock currently sells for $32.20....

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Q: A controversy erupted regarding bond-rating agencies when some agencies began

A controversy erupted regarding bond-rating agencies when some agencies began to provide unsolicited bond ratings. Why do you think this is controversial?

Q: Suppose you bought a bond with a 5.8 percent coupon

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Q: Locate the Treasury bond in Figure 8.4(given below

Locate the Treasury bond in Figure 8.4(given below) maturing in November 2039. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask sprea...

Q: You buy a zero coupon bond at the beginning of the year

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Q: a. What is the relationship between the price of a bond

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Q: For the firm in the previous problem, suppose the book value

For the firm in the previous problem, suppose the book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to...

Q: Miller Corporation has a premium bond making semiannual payments. The bond

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Q: You purchase a bond with a coupon rate of 5.9

You purchase a bond with a coupon rate of 5.9 percent and a clean price of $984. If the next semiannual coupon payment is due in four months, what is the invoice price?

Q: Frostbite Thermalwear has a zero coupon bond issue outstanding with a face

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Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000, semiannual coupon payments, and t...

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Why is underpricing not a great concern with bond offerings?

Q: A company has a single zero coupon bond outstanding that matures in

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Q: : You’ve just found a 10 percent coupon bond on the market

You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

Q: Which has greater interest rate risk, a 30-year Treasury

Which has greater interest rate risk, a 30-year Treasury bond or a 30-year BB corporate bond?

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Suppose your company needs to raise $50 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue a...

Q: Bond P is a premium bond with a coupon of 8.

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Q: The YTM on a bond is the interest rate you earn on

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period...

Q: McLemore Industries has a zero coupon bond issue that matures in two

McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $75,000. The current value of the company’s assets is $46,000, and the standard deviation of the return...

Q: The Frush Corporation has two different bonds currently outstanding. Bond M

The Frush Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 ever...

Q: Brozik Corp. has a zero coupon bond that matures in five

Brozik Corp. has a zero coupon bond that matures in five years with a face value of $40,000. The current value of the company’s assets is $38,000, and the standard deviation of its return on assets is...

Q: The following Treasury bond quote appeared in The Wall Street Journal on

The following Treasury bond quote appeared in The Wall Street Journal on May 11, 2004: Why would anyone buy this Treasury bond with a negative yield to maturity? How is this possible?

Q: You are planning to save for retirement over the next 30 years

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $900 per month in a stock account in real dollars and $300 per month in a bond account in real d...

Q: How does a bond issuer decide on the appropriate coupon rate to

How does a bond issuer decide on the appropriate coupon rate to set on its bonds? Explain the difference between the coupon rate and the required return on a bond.

Q: A convertible bond with a par value of $1,000

A convertible bond with a par value of $1,000 has a conversion price of $72.45. What is the conversion ratio of the bond?

Q: What is the price of a 15-year, zero coupon

What is the price of a 15-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the YTM is: a. 6 percent? b. 8 percent? c. 10 percent?

Q: Eckely, Inc., recently issued bonds with a conversion ratio of

Eckely, Inc., recently issued bonds with a conversion ratio of 14.5. If the stock price at the time of the bond issue was $53.16, what was the conversion premium?

Q: Shanken Corp. issued a 30-year, 5.9

Shanken Corp. issued a 30-year, 5.9 percent semiannual bond 6 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 35 percent. a. What is the pretax cost of...

Q: Even though most corporate bonds in the United States make coupon payments

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par val...

Q: We have seen that over long periods stock investments have tended to

We have seen that over long periods stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding their...

Q: Yan Yan Corp. has a $2,000 par value

Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 3.8 percent. What is the dollar...

Q: The City of Waterman established a capital projects fund for the construction

The City of Waterman established a capital projects fund for the construction of an access ramp from the parking garage to the city’s office building to be used by individuals with disabilities. The e...

Q: The City of Waterman established a debt service fund to account for

The City of Waterman established a debt service fund to account for the financial resources used to service the bonds issued to finance the ramp (see Exercise 18-6). The 10 percent, $150,000 bond issu...

Q: On June 30, 20X2, the end of the fiscal year

On June 30, 20X2, the end of the fiscal year, the Wadsworth Park District prepared the following trial balance for the general fund: An examination of the records disclosed the following information...

Q: The town of Papillion has assigned you to examine its June 30

The town of Papillion has assigned you to examine its June 30, 20X1, balance sheet. You are the first CPA to be engaged by the town, and you find that acceptable methods of municipal accounting have n...

Q: The following information relates to Vane City during the year ended December

The following information relates to Vane City during the year ended December 31, 20X8: 1. On October 31, 20X8, to finance the construction of a city hall annex, Vane issued 8 percent, 10-year gen...

Q: 1. The budgetary comparison schedule in the governmentwide financial statements for

1. The budgetary comparison schedule in the governmentwide financial statements for the period requires only the final budget and the actual amounts. 2. The accrual basis of accounting is used in...

Q: On January 1, the company issued 10-year bonds with

On January 1, the company issued 10-year bonds with a face value of $400,000. The bonds carry a coupon rate of 10%, and interest is paid semiannually. On the issue date, the market interest rate for b...

Q: On January 1, the company issued 10-year bonds with

On January 1, the company issued 10-year bonds with a face value of $400,000. The bonds carry a coupon rate of 10%, and interest is paid semiannually. On the issue date, the market interest rate for b...

Q: The company has convertible bonds with a total face amount of $

The company has convertible bonds with a total face amount of $100,000 and a carrying value of $98,500. The bonds are converted into 2,000 shares of $1 par common stock. Each share of stock had a mark...

Q: The company has one asset, a bond (called Bond B

The company has one asset, a bond (called Bond B) that it purchased (on the day it was issued) as an investment, and one liability, one of its own bonds (called Bond X) that the company issued to fina...

Q: What is the market value of each of the following bond issues

What is the market value of each of the following bond issues? (Round to the nearest dollar.) (a) 10% bonds of $1,000,000 sold on bond issue date; 10-year life; interest payable semiannually; effectiv...

Q: George’s Inc. is considering issuing bonds to finance the acquisition of

George’s Inc. is considering issuing bonds to finance the acquisition of a nationwide chain of distributors of George’s products. George’s is contemplating two different types of bonds to raise the re...

Q: Assume that $280,000 of Denham Springs School District 8

Assume that $280,000 of Denham Springs School District 8% bonds are sold on the bond issue date for $257,196. Interest is payable semiannually, and the bonds mature in 15 years. The purchase price pro...

Q: The Long-Term Debt section of Rodman Company’s balance sheet as

The Long-Term Debt section of Rodman Company’s balance sheet as of December 31, 2012, included 8% bonds payable of $600,000 less unamortized discount of $44,000. Further examination revealed that thes...

Q: Chiam Corporation has $300,000 of 12% bonds,

Chiam Corporation has $300,000 of 12% bonds, callable at 102, with a remaining 10-year term, and interest payable semiannually. The bonds are currently valued on the books at $290,000, and the company...

Q: Joy Insurance decides to finance expansion of its physical facilities by issuing

Joy Insurance decides to finance expansion of its physical facilities by issuing convertible debenture bonds. The terms of the bonds follow: maturity date 10 years after May 1, 2012, the date of issua...

Q: Clarkston Inc. issued $1,000,000 of convertible

Clarkston Inc. issued $1,000,000 of convertible 10-year, 11% bonds on July 1, 2012. The interest is payable semiannually on January 1 and July 1. The discount in connection with the issue was $9,500,...

Q: Ryan Marie Company has one asset, a bond issued by Miles

Ryan Marie Company has one asset, a bond issued by Miles Company that Ryan Marie purchased (on the day it was issued) as an investment. Ryan Marie also has only one liability, one of its own bonds tha...

Q: Bray Co. acquired $30,000 of Honey Sales Co

Bray Co. acquired $30,000 of Honey Sales Co.’s 7% bonds, interest payable semiannually, bonds maturing in five years. The bonds were acquired at $32,626, a price to return approximately 5%. Instructi...

Q: R. J. Winter Co. recently issued $100,

R. J. Winter Co. recently issued $100,000, 10-year deferred interest bonds. The bonds have a stated rate of 10%, and interest is to be paid in 10 semiannual payments beginning in Year 6. The market ra...

Q: On January 1, 2013, Datalink Inc. issued $100

On January 1, 2013, Datalink Inc. issued $100,000, 10%, 10-year bonds when the market rate of interest was 8%. Interest is payable on June 30 and December 31. The following financial information is av...

Q: On April 1, 2003, Rowe Tool Company authorized the sale

On April 1, 2003, Rowe Tool Company authorized the sale of $5,000,000 of 6% convertible bonds with interest payment dates of April 1 and October 1. The bonds were sold on July 1, 2003, and mature on A...

Q: Greenwood Company sold $4,000,000 of 7%

Greenwood Company sold $4,000,000 of 7% first-mortgage bonds on October 1, 2005, at $3,479,683 plus accrued interest. The bonds were dated July 1, 2005; interest payable semiannually on January 1 and...

Q: On June 1, 2012, Chloe Inc. purchased as a

On June 1, 2012, Chloe Inc. purchased as a long-term investment 800 of the $1,000 face value, 9% bonds of Logan Corporation for $731,052. The bonds were purchased to yield 11% interest. Interest is pa...

Q: On May 1, 2010, Glacier Bay Co. acquired $

On May 1, 2010, Glacier Bay Co. acquired $30,000 of Horizon Corp. 8% bonds at 97 plus accrued interest. Interest on bonds is payable semiannually on March 1 and September 1, and bonds mature on Septem...

Q: In auditing the books for Stiller Corporation as of December 31,

In auditing the books for Stiller Corporation as of December 31, 2013, before the accounts are closed, you find the following long-term investment account balance: Instructions: 1. Give the entries...

Q: Gerona Company authorized the sale of $300,000 of 10

Gerona Company authorized the sale of $300,000 of 10%, 10-year debentures on January 1, 2008. Interest is payable on January 1 and July 1. The entire issue was sold on April 1, 2008, at 103 plus accru...

Q: At the beginning of 2011, Wheel R. Dealer purchased the

At the beginning of 2011, Wheel R. Dealer purchased the net assets of Consolidated Corp. by issuing 10-year, 10% bonds with a face value of $100,000,000, with semiannual interest payments made on June...

Q: Von Surf Co. issued $1,200,000 of

Von Surf Co. issued $1,200,000 of convertible 10-year debentures on July 1, 2012. The debentures provide for 8% interest payable semiannually on January 1 and July 1. The discount in connection with t...

Q: On January 1, 2012, Brewster Company issued 2,000

On January 1, 2012, Brewster Company issued 2,000 of its 5-year, $1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31....

Q: The company intends to issue 20-year bonds with a face

The company intends to issue 20-year bonds with a face value of $1,000. The bonds carry a coupon rate of 9%, and interest is paid semiannually. On the issue date, the market interest rate for bonds is...

Q: 1. On December 31, 2014, Moss Co. issued

1. On December 31, 2014, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $...

Q: Jefferson Corporation has $20,000,000 of 10%

Jefferson Corporation has $20,000,000 of 10% bonds outstanding. Because of cash flow problems, the company is behind in interest payments and in contributions to its bonds retirement fund. The market...

Q: The company intends to issue 10-year bonds with a face

The company intends to issue 10-year bonds with a face value of $1,000. The bonds carry a coupon rate of 13%, and interest is paid semiannually. On the issue date, the market interest rate for bonds i...

Q: The Stockholders’ Equity section of Webster Inc. showed the following data

The Stockholders’ Equity section of Webster Inc. showed the following data on December 31, 2012: common stock, $3 par, 300,000 shares authorized, 250,000 shares issued and outstanding, $750,000; paid-...

Q: What is meant by market rate of interest, stated or contract

What is meant by market rate of interest, stated or contract rate, and effective rate? Which of these rates changes during the lifetime of the bond issue?

Q: What is the recommended accounting treatment for bond restructurings effected as

What is the recommended accounting treatment for bond restructurings effected as (a) An asset swap? (b) An equity swap? (c) A modification of terms?

Q: What is meant by refinancing or refunding a bond issue? When

What is meant by refinancing or refunding a bond issue? When may refinancing be advisable?