On 1 July 2018 BMW Ltd issues $2 million in 10-year debentures that pay interest each six months ata coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of returnof 12 per cent. Interest expense is determined using the effective-interest method.Formula for PV of $1 in n periods =1/(1+k)*l-1/(l#k)"Formula for present value of annuity of $1 per period for n periods =where, k is the discount rate expressed in decimalRequired:(i)Determine the issue price of the debenture.(ii)Provide the journal entries at 1 July 2018 and 30 June 2019.

Concept Debenture is a form of loan or debt raised by company through issuance of debentures.…

Answered: On 1 July 2018 BMW Ltd issues $2…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Jaison Ltd issues $8 million in 5-year debentures that pay interest every 6 months at a coupon rate of 10% per annum. The required market rate of return is 14% per annum. What is the issue price of the debentures (rounded to the nearest dollar)?
X Co. want to raise $100 million of 5-year debt in the Euro-market where interest is paid annually. It can obtain a 5-yr floating rate note with an interest rate of 1-year LIBOR + 2%. The 1-year LIBOR rate is currently 5%. To hedge the interest rate risk X Co. plans to enter into a collar with a cap rate of 6% and a floor rate of 4%. The notional principal of both the cap and floor is $100 million. The cap premium is 1.4% of the notional principal and the floor premium is 0.5% of the notional premium. What is the worst case all-in-rate that X Co. will pay in total? Answer options: 5.8% 5.2% 9.2% 8.2% 7.2%
A mortgage pass-through security (PT) has a par value of $100,000, a 4% coupon paid monthly, and is based on 30 year mortgages. The current market rate for similar bonds is 3.5%, and prepayments currently equal $100 per month. Assume rates immediately rise to 4.5%, and prepayments drop to $40 as a result. The PT will now be paid off in month 310. What is the price of the PT today? Group of answer choices: $98,323.2214 $184,274.6844 $94,737.4877 $102,365.1248
A gilt with a face value of £100 and 2 years to maturity pays a 6% annual coupon. It is quoted at a price of £99.09. What is its yield to maturity (YTM)? Present Value Table Present value of 1 i.e. (1 + r)–n Where r = discount rate n = number of periods until payment Periods Discount rate (r) Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%1 0.990 0.980 0.971 0.962 0.952 0.942 0.933 0.923 0.914 0.9052 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.8263 0.971 0.942 0.914 0.887 0.861 0.837 0.813 0.790 0.768 0.7464 0.961 0.924 0.888 0.853 0.819 0.786 0.754 0.723 0.693 0.6655 0.951 0.888 0.837 0.789 0.747 0.708 0.672 0.636 0.603 0.5736 0.942 0.853 0.789 0.735 0.681 0.630 0.582 0.537 0.495 0.4567 0.933…
8. On January 28, 2011 a T-bill was issued with a face value of $170000 and a maturity date of July 22, 2011. If it was purchased for $164862.17 on the date it was issued, what yield is the investor realizing?
Bonds of Francesca Corporation with a par value of $1,000 sell for $940, mature in six years, and have a 7% annual coupon rate paid semiannually. Do not round intermediate calculations. Round your answers to two decimal places. Calculate: a. current yield. 7.45 % annually b. yield to maturity, to the nearest basis point. 8.29 % annually c. horizon yield (or realized return) for an investor with a four-year holding period and a reinvestment rate of 5% over the period. At the end of four years, the 7% coupon bonds with two years remaining will sell to yield 7%. % annually
A £2,000,000 certificate of deposit was issued at par with a coupon of 8% and 91 days to maturity. It is currently yielding 8.5% with 60 days to maturity. What is the current price of this certificate of deposit?
A 3-year forward contract on Mathcorp shares is to be issued. The current share price is £4.50 and the last dividend which was paid was £0.20. It is assumed that dividends will be paid every quarter year to shareholders and are increasing at a rate of 1% per quarter in the first two years and by 1.5% per quarter in the final year. Assuming a continuously compounded risk-free rate of 5% p.a., calculate the forward price.

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS