Concept explainers
To determine: Whether the old issue shall be refunded by the Sunbelt Corporation or not.
Introduction:
Bond:
It is a long-term loan borrowed by the corporations, organizations, and the government for the purpose of raising capital. It is issued at a fixed interest depending upon the reputation of the corporations and is also termed as fixed-income security.
A project’s NPV profile is the representation done graphically of the project’s NPV corresponding to different values of the rate of discount. It shows the changes that take place in NPV as a result of the changes in the cost of capital.
Present value(PV):
The current value of an investment or an asset is termed as its present value. It is evaluated by discounting the
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Loose Leaf for Foundations of Financial Management Format: Loose-leaf
- The Virginia Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay $60 in interest each six months. Their price has remained stable since they were issued. i.e. they still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of $1,000 and pay $40 in interest every six months. If both bonds have the same yield, how many new bonds must the company issue to raise $2,000,000 cash?arrow_forwardA company issued a 10%, 5-year, $10,000 bond to an investor for a cash price of $9,506. The best explanation/reason why the company did not receive exactly $10,000 cash is: the company paid a broker a commission on the issuance. the interest rate changed since the bonds were first offered, and the investor demanded a higher interest rate for her investment in the bond the interest rate changed since the bonds were first offered, and the investor accepted a lower interest rate for her investment in the bond none of the above are legitimate reasonsarrow_forwardThe Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $50,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $1,600 every six months over the subsequent eight years, and finally pays $1,500 every six months over the last six years. Bond N also has a face value of $50,000 and a maturity of 20 years, it makes no coupon payments over the life of the bond. The required return on both these bonds is 10 percent compounded semiannually. What is the current price of Bond M and Bond N? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) Current Price Bond M $4 Bond Narrow_forward
- On July 1, Somers Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12 %. The bonds paid interest semi-annually. A. Assuming the bonds sold at 59.55, what was the selling price of the bonds? B. Explain why the cash received from selling this bond is different from the $200,000 face value of the bond. Investors can earn a higher rate ✓ in other similar bonds so the bond sells at a discountarrow_forwardThe following information applies to the questions displayed below.] Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided.arrow_forwardABC Corporation is issuing some zero coupon bonds, which pay no interest. At maturity in 15 years they pay a face value of $1000. The bonds are expected to sell for $275 when issued. (a) What is the effective interest rate an investor receives? (b) A 1.5% fee (based on the face value) is deducted by the brokerage firm from the initial revenue. What is the effective annual interest rate paid by ABC Corporation?arrow_forward
- five years ago, Highland, Inc. issued a corporate bond with an annual coupon of $5,500, paid at the rate of $2,750 every six months, and a maturity of 14 years. The par (face) value of the bond is $1,000,000. Recently, however, the company has run into some financial difficulty and has restructured its obligations. Today's coupon payment has already been paid, but the remaining coupon payments will be postponed until maturity. The postponed payments will accrue interest at an annual rate of 6.5% per year and will be paid as a lump sum amount at maturity along with the face value. The discount rate on the renegotiated bonds, now considered much riskier, has gone from 8.5% prior to the renegotiations to 12.5% per annum with the announcement of the restructuring. What is the price at which the new renegotiated bond should be selling today? Recall that the compounding interval is 6 months and the YTM, like all interest rates, is reported on an annualized basis. (Enter just the number in…arrow_forwardOn July 1, Somers Inc. issued $300,000 of 12%, 10-year bonds when the market rate was 14%. The bonds paid interest semi-annually. A. Assuming the bonds sold at 59.55, what was the selling price of the bonds? $ B. Explain why the cash received from selling this bond is different from the $300,000 face value of the bond. Investors can earn a higher rate/lower rate? in other similar bonds so the bond sells at a Premium/discount?arrow_forwardCookie Dough 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 $900 every six months over the subsequent eight years, and finally pays $1,300 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 4.7 percent compounded semiannually. I want to know why F03 is 11 on the financial calculator?arrow_forward
- Four years ago, Dania Incorporated issued a 10-year annual zero-bond for $708.92 when the interest rate was 3.5%. The interest rate has remained the same since that time. What would be the market value of the bond today? The correct answer is $813.50. Can you show me the steps please and use equations and no excel or financial calculator.arrow_forwardJallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $70,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,800 every six months over the subsequent eight years, and finally pays $3,100 every six months over the last six years. Bond N also has a face value of $70,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 10 percent compounded semiannually. What is the current price of Bond M and Bond N? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)arrow_forwardOn July 1, Somers Inc. issued $300,000 of 10%, 10-year bonds when the market rate was 12%. The bonds paid interest semi-annually. A. Assuming the bonds sold at 64.55, what was the selling price of the bonds? B. Explain why the cash received from selling this bond is different from the $300,000 face value of the bond. Investors can earn a in other similar bonds so the bond sells at aarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT