On January 1, 20x2, Hoffman Company issued bonds with a face amount of $800,000 and a contractinterest at the rate of 10%. The current market rate of interest is 12%. What is the issue (selling) price ofthese bonds?

To calculate the issue (selling) price of the bonds, we can use the present value formula. The…

Answered: interest at the rate of 10%. The…

interest at the rate of 10%. The current market rate of interest is 12%. What is the issue (selling) price of these bonds?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: A bond has a $1,000 face value, a market price of $996.29, and pays interest payments of $72.05…

A: In the given case, we have provided the face value or the par value of bond , market price of bond…

Q: If the price of this bond decreases by $250 to $750, what will its effective interest rate be for…

A: Effective Interest rate of a bond is the yield on the bond. It is rate that defines the rate of…

Q: Based on Appendix 14A) Why will bonds always sell at their price plus any interest that has accrued…

A: Bonds: Bonds are a kind of interest-bearing notes payable, usually issued by companies,…

Q: Vi (H X.) 25) A credit market instrument that pays the owner a fixed coupon payment every year until…

A: This question involves identifying the correct term for a credit market instrument that pays a fixed…

Q: The outstanding bonds of Winter Tires Inc. provide a real rate of return of 4.2 percent. If the…

A: Real rate of return = 4.2% = 0.042Rate of inflation = 5.8% = 0.058

Q: The nominal rate of interest on a bond is 7% and an inflation premium of 3%. This results in a real…

A: Real rate of interest refers to the rate at which the effect of inflation has been eliminated and…

Q: T-bill 5.00 10y T-Bond 6.00

A: Maturity risk premium refers to the extra premium that the investors earns when holding a security…

Q: Treasury notes and bonds. Use the information in the following table Assume a $100,000 par value.…

A: YTM or yield to maturity is the annual return that a bond holder would receive if they held the bond…

Q: A bond has a semi-annual coupon payment of $16.6 . What is the coupon RATE? Convert to a percent.…

A: Coupon Rate: It represents the rate of interest paid to the bondholders by the issuer. Thus, it is…

Q: A Treasury bond that you own at the beginning of the year is worth $1,020. During the year, it pays…

A: Dollar return = Ending value + interest - beginning value Dollar return = $1,030 + 32 - $1,020…

Q: Assume that interest rate on a 182-day, $1 million face value, T-Bill is currently selling at a…

A: The below expression can be used to calculate the current price of T-bill:

Q: The table below shows current and expected future one-year interest rates, as well as current…

A: Given, YearOne-Year Bond RateMultiyear Bond…

Q: Interest Payments and Interest Expense for Bonds (Straight Line) Swiss Inc. sold 20-year bonds with…

A: ''It is a question with multiple sub-parts, therefore we will do the first three sub-parts. To get…

Q: What is the current U.S. treasury bond rate for 3 month, 2 year, and 10 year bond terms?

A: The U.S. Treasury issues bonds with various maturities, meaning the length of time until the…

Q: The table below shows current and expected future one-year interest rates, as well as current…

A: The objective of the question is to calculate the liquidity premium for each multiyear bond. The…

Q: A Treasury bond that you own at the beginning of the year is worth $1,100. During the year, it pays…

A: Treasury Bond: Beginning value (purchase price)= 1100 Ending value (Sale price)= 1110 Interest…

Q: 5-year Treasury bonds have a nominal yield of 1.80%. The inflation premium (IP) is 2.09%, and the…

A: The real risk free rate can be determined by deducting the maturity risk premium from the real rate…

Q: A bond traded at 971⁄2 means that

A: It refers to the financial instrument used by companies and institution to raise money from the…

Q: The face or par value for bonds is the amount paid to bondholders at maturity and is usually equal…

A: Bonds are the liabilities of the company which is issued to raise the funds required to finance the…

Q: bond issue with a face amount of $497,000 bears interest at the rate of 7%. The current market rate…

A: A bond's issue price and Market rate of interest are inversely related. If Market rate of interest…

Q: Interest premium. Estimate the default premium and the maturity premium given the following three…

A: Default Premium:The default premium is the difference in interest rates between the AAA corporate…

Q: A bond with 18 years to maturity has an annual interest payment of $30. If the bond sells for its…

A: Let the face value be $1000 therefore price of the bond =$1000 using excel rate function current…

Q: A corporate bond, Aaa credit, with a par value of $1000 is quoted at 94 3/8. What is the cost of the…

A: Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at…

Q: What is the YTM of the bond given the information below. The bond makes annual interest payments.…

A: YTM measures the actual return you will get if you hold bond till maturity. It consider the price at…

Q: Suppose a U.S. government bond pays $2,155.40 in 5 years at 6% interest. Calculate the present value…

A: Future value of bond (FV) = $ 2,155.40 Period (N) = 5 Years Interest rate (R) = 6%

Q: A bond has a conversion price of $12 and a face value of $2,000. The conversion ratio is ?

A: Face Value of Bond = $2,000Conversion Price = $12Face Value of Convertible Security is the nominal…

Q: Treasury notes and bonds. Use the information in the following table: Assume a $100,000 par value.…

A: Bond is semi annual compounding Number of years between 2006 and 2016 is 10 years.

Q: A U.S. Treasury bill with 93 days to maturity is quoted at a discount yield of 1.65 percent. What is…

A: Bond Equivalent Yield (BEY) is a financial metric that establishes the yield on bonds with varying…

Q: 5. Compute the price of $86,708,402 received for the bonds by using the Present value at compound…

A: The objective of the question is to verify the price of the bonds received using the present value…

Q: What would be the value of this bond if it paid interest semiannually? was missed ?

A: Price of bond is the present value of coupon payment and present value of par value of bond taken on…

Q: Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds…

A: Given: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10%

Q: Assume that the one-year interest rates over the next four years are expected to be 7%, 8%, 9%, and…

A: Liquidity Premium Theory of Interest Rates: According to this theory investors prefer short-term…

Q: A company issues a bond with a par value of $500,000 and a contract rate of 5%. Explain the concept…

A: Market rate is the current rate of interest at which similar bonds are trading in the market.…

Q: A 6-year bond pays interest of $80 annually and sells for $975. What is its coupon rate, current…

A: Coupon rate: Coupon rate is the rate at which a bond is paying interest at a regular interval.…

Q: The outstanding bonds of Winter Tires Inc. provide a real rate of return of 3.2 percent. If the…

A: The Fisher equation, named after economist Irving Fisher, is a fundamental concept in macroeconomics…

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

On January 1, 20x2, Hoffman Company issued bonds with a face amount of $800,000 and a contract
interest at the rate of 10%. The current market rate of interest is 12%. What is the issue (selling) price of
these bonds?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Explanation

VIEW

Step 2: working

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

What is the price of the bond given the information below. The bond makes semiannual interest payments. (Do not round intermediate calculations, round answer to two decimals, i.e. 32.16) Coupon Rate:8.5% YTM:9.5% Maturity (years):8 Par value: $2,000
What is the total cost of borrowing over the life of the bond? (Round answer to 0 decimal places, e.g. - Total cost of borrowing over the life of the bond $ Save for Later Attempts lipi
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
Calculate the value of each bond and discuss whether it sells at par, discount, or premium. (Annual interest rate) O A. Bond Bond Value A B C O B. Bond A B C O C. Bond A B с O D. Bond A B C $1,149.39 Discount $1,000.00 Par $85.60 Premium Bond Value Sells at par/discount/premium Bond Value $1,149.39 Premium $1,000.00 Par $85.60 Discount Sells at par/discount/premium Bond Value Sells at par/discount/premium $1,149.39 Premium $1,000.00 Par $85.60 Premium Sells at par/discount/premium $1,049.39 Premium $1,100.00 Premium $85.60 Discount Bond Par value Coupon interest Years to rate maturity JA B IC $1000 14% $1000 18% $100 10% 120 16 18 Required return 12% 8% 13%
What is the typical relationship among interest rates onthree-month Treasury bills, long-term Treasury bonds,and Baa corporate bonds?
If a one-year bond with a face value of $100 (the bond pays the bearer $100 one year from now) sells today for $85, what is the interest rate on the bond? 0 15% 17.6% 1.18% It depends on what the Federal Reserve sets as its target rate for the Federal Funds Rate.
Why will bonds always sell at their price plus any interest that has accrued since the last interest date?
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(201) = 5.45%, E(3r1) = 5.95%, E(41) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? < A. 5.57% B. 5.62% C. 5.83% D. 6.10%
5. Compute the price of $94,580,761 received for the bonds by using the tables shown in Present Value Tables. (Round to the nearest dollar.) Present value of the face amount Present value of the semiannual interest payments Price received for the bonds
Assume all bonds have par or face value of 1,000
The interest rate on one-year Treasury bonds is 0.8 percent, the rate on two-year T-bonds is 0.9 percent, and the rate on three-year T-bonds is 1.0 percent. Using the expectations theory, compute the expected one-year interest rate in the second year (Year 2 only). Round your answer to one decimal place. % Using the expectations theory, compute the expected one-year interest rate in the third year (Year 3 only). Round your answer to one decimal place. %
Show me the steps with explanations to calculate the bond's time to maturity given the a discount bound is bought at a current price of $1000 and it promises to pay $1340 with an interest rate (yield) of 5%.