9:52 PM 23) The amount of cash that must be paid to retire a bond before its mat
ID: 2574020 • Letter: 9
Question
9:52 PM 23) The amount of cash that must be paid to retire a bond before its matuity date krefered to s a. The early retirement cost b. The cell price c. The Conversion Price d. The Call Price 24) Shug Jordan Co recently sold their $100,000 face value bonds for $90,000. The stated the bonds was 9% and the market rate was 11%. The bonds have a life of 10 years and interest is aid annualy. What is the total amount of Interest expense that Shug lordan Co will incur throughout the life of the bond? a. 110,000 b. 99,000 C. 100,000 d. 120,000 25) Shug Jordan Co had the following account balances: $75,000 Cash Accounts Receivable Current Liabilities Notes Payable Retained Earnings Contributed Capital 60,000 134,000 200,000 100,000 600,000 Calculate Shug Jordan Co's Debt to Equity Ratio a. 0.191 b.0.675 c. 0.286 d. 0.477Explanation / Answer
Face value of the bonds=$100,000
Stated interest rate=9%
Market rate=11%.=rate.
Tenure of the bond=10 years.=nper
Issue price of the bond would be lower than the face value, becasue, the stated rate is less than the market rate, hence the bonds can be sold at discount only in the current market.
Current price can be determined by using the present value of coupon payments and the present value of maturity proceeds discounted with 11%
Coupon payment=$100,000*9%
=$9,000.=pmt is paid annually.
Present value of coupon payments=pv(rate,nper,pmt,[fv],[type])
=PV(11%,10,-9000,,0)
=$53,003.09.---------(1)
Present value of maturity proeeds=100000*1/(1+.11)^10
=$35,218.40---------(2)
Present value of coupon payments and maturity proceeds=(1)+(2)
=$88,221.54.
Discount on issue of bonds=$100,000 -$88,221.54
=$11,778.46.
This is also to be amortized over the term of the bond as interest expense. Hence, total interest expense over the life of the bond=$9000 per year*10 years+$11,778.46.
=$90,000+$11,778.46.
=$101,778.46.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.