On June 30, 2005 Jolie Co. issues $300,000 of 10 year, 11% bonds. The bonds pay interest semiannually on June 30th and December 31st . The bonds have a call provision which allows Jolie Co. to repurchase them at a price of 108 any time after the first year. The market yield for the bonds at the date of issue is 10%. Jolie Co. pays $10,000 in issuance costs. Other information: a. Jolie has a December 31st year end. b. Jolie calls the bonds on 3/31/07, exactly three months after the last coupon payment was made. The market price at this time is 112. c. The enacted tax rate is 40% for all years. Question: At what premium or discount does this issue sell?
On June 30, 2005 Jolie Co. issues $300,000 of 10 year, 11% bonds. The bonds pay interest semiannually on June 30th and December 31st . The bonds have a call provision which allows Jolie Co. to repurchase them at a price of 108 any time after the first year. The market yield for the bonds at the date of issue is 10%. Jolie Co. pays $10,000 in issuance costs. Other information: a. Jolie has a December 31st year end. b. Jolie calls the bonds on 3/31/07, exactly three months after the last coupon payment was made. The market price at this time is 112. c. The enacted tax rate is 40% for all years. Question: At what premium or discount does this issue sell?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On June 30, 2005 Jolie Co. issues $300,000 of 10 year, 11% bonds. The bonds pay interest
semiannually on June 30th and December 31st
. The bonds have a call provision which allows
Jolie Co. to repurchase them at a price of 108 any time after the first year. The market yield for
the bonds at the date of issue is 10%. Jolie Co. pays $10,000 in issuance costs.
Other information:
a. Jolie has a December 31st year end.
b. Jolie calls the bonds on 3/31/07, exactly three months after the last coupon payment was
made. The market price at this time is 112.
c. The enacted tax rate is 40% for all years.
Question: At what premium or discount does this issue sell?
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