A corporation sold an issue of 20-year bonds, having a total face value of P10,000,000 for P9,500,000. The bondsbear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond1.issue and will make semiannual deposits that will earn 12%, compounded semiannually. Compute the annualcost for interest and redemption of these bonds.2. A company has issued 10-year bonds, with a face value of P1,000,000 in P1,000 units. Interest at 16% is paidquarterly. If an investor desires to earn 20% nominal interest on P100,0000 worth of these bonds, what wouldthe selling price have to be?3. A P1,500-bond which will mature in 10 years and with a bond rate of 15% payable annually is to be redeemed at

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1. A corporation sold an issue of 20-year bonds, having a total face value of P10,000,000 for P9,500,000. The bonds bear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond issue and will make semiannual deposits that will earn 12%, compounded semiannually. Compute the annual cost for interest and redemption of these bonds.

1. A corporation sold an issue of 20-year bonds, having a total face value of P10,000,000 for P9,500,000. The bonds bear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond issue and will make semiannual deposits that will earn 12%, compounded semiannually. Compute the annual cost for interest and redemption of these bonds.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

A corporation sold an issue of 20-year bonds, having a total face value of P10,000,000 for P9,500,000. The bonds
bear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond
1.
issue and will make semiannual deposits that will earn 12%, compounded semiannually. Compute the annual
cost for interest and redemption of these bonds.
2. A company has issued 10-year bonds, with a face value of P1,000,000 in P1,000 units. Interest at 16% is paid
quarterly. If an investor desires to earn 20% nominal interest on P100,0000 worth of these bonds, what would
the selling price have to be?
3. A P1,500-bond which will mature in 10 years and with a bond rate of 15% payable annually is to be redeemed at

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Acme Organic Potato Chip Corp. sold an issue of 12-year $1,000 par bonds for general corporation finance purposes. The bonds pay 4.85% interest, semiannually. Today's required rate of return is 9.7%. How much should these bonds sell for today?
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A corporation issues for cash $1,000,000 of 10%, 20 year bonds, interest payable annually, at a time when the market rate of interest is 12% . The amortization Bond discount or premium. Which of the following statements is true A. The amount of annual interest expense gradually decreases over the life of the bonds B. The amount of annual interest expense is commuted at 10% of the bond carrying amount at the beginning of the year. C. The bonds will be issued at a premium. D. The amount of unmortized discount decreases from its balance at issuance date to a zero balance at maturity.
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A corporation issues for cash $14,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? A. The amount of annual interest paid to bondholders remains the same over the life of the 9. bonds. B. The amount of annual interest expense decreases as the bonds approach maturity. C. The amount of annual interest paid to bondholders increases over the 20-year life of the bonds. D. The carrying amount decreases from its amount at issuance date to $14,000,000 at maturity.
A Corporation has a 6%, $500,000 bond issue that originally was issued 5 years ago. There are now eight years remaining on the bond issue, and the market interest rate is 10%. Interest is paid semiannually. Calculate the current market value of the bond issue, using present value tables. Please label all work.
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