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3. (a) Lexington Homes plans to issue $1 million in unsecured, non-callable bond. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000. Alternatively, it plans to issue $1 million in rod allable bend AILothor ms are the

3. (a) Lexington Homes plans to issue $1 million in unsecured, non-callable bond. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000. Alternatively, it plans to issue $1 million in rod allable bend AILothor ms are the

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3. (a) Lexington Homes plans to issue $1 million in unsecured, non-callable bond. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000. Alternatively, it plans to issue $1 million in unsecured, callable bond. All other terms are the same. Which kind of bond is more attractive to investors? Please explain briefly. (b) Green Roof Inns bonds will mature in 9 and have a coupon rate of 3 percent. If the market rate of interest decreases in the next year, what change are you expecting for the market price and the current yield of the bond? years
Transcribed Image Text:3. (a) Lexington Homes plans to issue $1 million in unsecured, non-callable bond. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000. Alternatively, it plans to issue $1 million in unsecured, callable bond. All other terms are the same. Which kind of bond is more attractive to investors? Please explain briefly. (b) Green Roof Inns bonds will mature in 9 and have a coupon rate of 3 percent. If the market rate of interest decreases in the next year, what change are you expecting for the market price and the current yield of the bond? years
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