Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. bubs corporation is planning to issue bonds with a

Bubs Corporation is planning to issue bonds with a face value of $506,500 and a coupon...

Free

60.1K

Verified Solution

Question

Accounting

Bubs Corporation is planning to issue bonds with a face value of$506,500 and a coupon rate of 6 percent. The bonds mature in 15years and pay interest semiannually every June 30 and December 31.All of the bonds will be sold on January 1 of this year. (FV of $1,PV of $1, FVA of $1, and PVA of $1)

Compute the issue (sales) price on January 1 of this year foreach of the following independent cases:

Case A: Market interest rate (annual): 8.5%

Case B: Market interest rate (annual): 4%

What are the issue prices for each case?

Answer & Explanation Solved by verified expert
3.7 Ratings (509 Votes)

A B C
1 Case A Case B
2 Face value (It is the maturity amount to be repaid) 506500 506500
3 Coupon rate 6% 6%
4 Interest paid semi-annually 15195 15195
5 Number of semiannual periods 30 30
6 Market interest rate 8.5% 4%
7
8 Present value of interest paid semi-annually $254,957 $340,314
9 Present value of maturity amount to be repaid $145,311 $279,624
10 Issue price of the bonds $400,268 $619,938

Above figures have been calculated in the following manner:

Case A Case B
Face value (It is the maturity amount to be repaid) 506500 506500
Coupon rate 0.06 0.06
Interest paid semi-annually =B2*B3*(1/2) =C2*C3*(1/2)
Number of semiannual periods =15*2 =15*2
Market interest rate 0.085 0.04
Present value of interest paid semi-annually =PV(B6/2,B5,-B4,0,0) =PV(C6/2,C5,-C4,0,0)
Present value of maturity amount to be repaid =PV(B6/2,B5,0,-B2,0) =PV(C6/2,C5,0,-C2,0)
Issue price of the bonds =B8+B9 =C8+C9

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Bubs Corporation is planning to issue bonds with a face value of$506,500 and a coupon rate of 6 percent. The bonds mature in 15years and pay interest semiannually every June 30 and December 31.All of the bonds will be sold on January 1 of this year. (FV of $1,PV of $1, FVA of $1, and PVA of $1)Compute the issue (sales) price on January 1 of this year foreach of the following independent cases:Case A: Market interest rate (annual): 8.5%Case B: Market interest rate (annual): 4%What are the issue prices for each case?

Other questions asked by students

Q

1. Would a saturated fatty acid hold more potential energy or less potential energy than an unsaturated...

Biology
Q

A tapered circular bar of length is rigidly fixed at both the ends Diameter of...

Physics
Q

Find an equation of the line with the given slope and containing the given point....

Algebra
Q

Download the Applying Excel form below. Follow the tutorial on the first tab...

Accounting
Q

Current Attempt in Progress The financial statements of ConAgra Foods, Inc.'s recent annual report...

Accounting
Q

A Limited acquired an asset 'goodwill' for $40000. At balance date the goodwill had a...

Accounting
Q

Truball Incorporated which manufactures sports equipment, consists of several operating divisions. Division A has decided...

Accounting
Q

you are amazing!! :-) [The following information applies...

Accounting
Q

Which of the following is true about forecasts? Forecasts present what management believes would occur...

Accounting
Q

14. A bond with a $1000 par value makes annual coupon payments of $40 and...

Finance
Q

Ex. 3Utilidad por accin. Santana Corporation tiene 400,000 acciones ordinarias en circulacin a lo largo...

Accounting
Q

Allstar Company signed a $250,000 mortgage on July 1, 2018 for the purchase of their...

Accounting