On 1 January 20X5, Franco Ltd. purchased $440,000 of Gentron Company 7.00% bonds. The bonds pay semi-annual interest each 30June and 31 December. The market interest rate was 8% on the date of purchase. The bonds mature on 31 December 20X10. Thecompany has a 31 December year-end.Required:1. Calculate the price paid by Franco Ltd. (Do not round Intermediate calculations. Round your final answer to the nearest dollaramount.)Price paidPeriod2. Assume that the bond is classified as an AC investment. Construct a table that shows interest revenue reported by Franco, and thecarrying value of the investment, for four interest periods. Use the effective-interest method. (Do not round Intermediate calculations.Round your final answers to the nearest dollar amount.)0$1234CashPayment361,607View transaction listInterestRevenueAmortizationBond CarryingValue3. Prepare the entries for the first four interest periods based on your calculations in requirement 2. (If no entry is required for atransaction/event, select "No Journal entry required" In the first account field. Do not round Intermediate calculations. Round yourFinal answers to the nearest dollar amount.)

Bond valuation is the process of determining the fair market value of a bond, considering factors…

Answered: Required: 1. Calculate the price paid…

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
For the next three questions (1-3) assume what follows: Assume that you acquired a previously issued debt instrument. According to its specifications, it promised to pay $1,000 precisely in two years from the day of its original issue. At the time it was issued, investors anticipated 8.00% in interest on instruments with similar characteristics and risk level. *Note, standard rounding rules apply to all calculations! Q1. What price did you have to pay for this security - under assumption that you acquired it in a secondary market precisely three months after its original issuing, and taking into account that at the time of your acquisition investors anticipated to earn 10.00% in interest on securities with similar features and risk characteristics? A). $857.34 B). $846.37 3000K AS
None
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) Calculate the duration and convexity of the both asset and liability sides If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio In c)’s scenario, to maintain the equity to asset ratio at 40% which is required by the…
An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) a. $10,000 par value, coupon rate=9.7%, r 0.17 b. $10,000 par value, coupon rate 11.7%, r= 0.17 c. $10,000 par value, coupon rate = 13.7%, p=0.17 Duration of the bond years
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