None If a bond with a par value of $500 anda call premium of 6% is called inbefore its maturity date, the firm wouldhave to remit the following to thebondholders:a. $500b. $530c. $0d. None of the above

Step 1: Identify the par valueThe par value of the bond is given as $500. Step 2: Determine the…

Answered: If a bond with a par value of $500 and…

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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Calculating the risk premium on bonds The text presents a formula where (1+1) = (1-p)(1 +i+x) + p(0) where i is the nominal interest rate on a riskless bond x is the risk premium p is the probability of default (bankruptcy) If the probability of bankruptcy is zero, the rate of interest on the risky bond is When the nominal interest rate for a risky borrower is 8% and the nominal policy rate of interest is 3%, the probability of bankruptcy is %. (Round your response to two decimal places.) When the probability of bankruptcy is 6% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) When the probability of bankruptcy is 11% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) The formula assumes that payment upon default is zero. In fact, it is often positive. How would you change the formula in this case?…
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If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date, the firm would have to remit the following to the bondholders: a. $500 b. $530 c. $0 d. None of the above