Thomas Company is planning to issue $510,000 of 9%, 15-year bonds payable to borrow for a major expansion. The owner, Frederick Thomas, asks your advice on some related matters.Read the requirements......Requirement 1. Answer the following questions.At what type of bond price will Thomas Company have total interest expense equal to the casha. interest payments?Face valueUnder which type of bond price will Thomas Company's total interest expense be greater than theb. cash interest payments?Discount priceIf the market interest rate is 12%, what type of bond price can Thomas Company expect for thec. bonds?Discount priceRequirement 2. Compute the price of the bonds if the bonds are issued at 89.The price of the $510,000 bond issued at 89 is$ 453,900Requirement 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (For this scenario we are assuming that the $510,000 bonds are issued at 89.Further assume that the straight-line method is used.)If the $510,000 bonds are issued at 89, Thomas Company will pay this amount of interest each year$45,900(Round your answers to the nearest whole dollar.)Assuming that the straight-line method is used, Thomas Company's interest expense for the first year will beRequirements1. Answer the following questions:At what type of bond price will Thomas Company have total interest expense equal to the cashinterest payments?а.b.Under which type of bond price will Thomas Company's total interest expense be greater thanthe cash interest payments?If the market interest rate is 12%, what type of bond price can Thomas Company expect for thebonds?с.2.Compute the price of the bonds if the bonds are issued at 89.3.How much will Thomas Company pay in interest each year? How much will Thomas Company'sinterest expense be for the first year? (Assume the straight-line method is used.)

The straight-line method shows the reduction with the same amount each year for the value over a…

Answered: Requirement 1. Answer the following…

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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The debt component of convertible bonds issued using IFRS is the a. present value of the future cash flows at the market interest rate b. present value of the future cash flows at the stated interest rate c. market value of similar bonds without a conversion feature d. same as the calculation for GAAP
What happens to Bond prices, quantities, and interest rates if (Make sure to include the supply and demand graph for bonds for each question : a) Decrease in wealth b) Increase in risk c) Decrease in liquidity
Which factor(s) lead to the difference of the interest between T-bill and a short-term corporate bond? Group of answer choices a)Inflation rate b)Default risk and maturity risk c)Maturity risk d)Default risk
Which of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30
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The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
Zero coupon bonds: O a. create annual taxable income to individual bondholders. O b. create a tax deduction for the issuer only at maturity. O care issued only by the U.S. Treasury. O d. are issued at a premium. O e. are valued using simple interest.
Which of the following statements is TRUE regarding bonds? O A. At maturity, lenders repay a bond's par value to borrowers. O B. Ceteris paribus, bonds with higher YTMS would have higher prices. c. Borrowers purchase bonds. O D. If you anticipate a decline in market interest rates, you should purchase long-term zero-coupon bonds.
Can I use the yield to maturity (YTM) on a bond issued by the company as the cost of debt? A Yes, you can use the YTM B No, you cannot use the YTM C Only if the bond is liquid and has not special feature embedded in it D There is not enough information to answer this problem
Problem 3 There are two types of banks, A and B. Each bank has 20 loans. Each loan of type A bank generates $500 with probability 0.9 and $200 with probability 0.1, and these cash flows are independently distributed. Each loan of the type B bank generates $600 with probability 0.4 and $200 with probability 0.6, and these cash flows are independently distributed, too. Suppose that the bank XYZ is type A. However, the investors believe that XYZ is type A with probability 0.3 and type B with probability 0.7. Ignore investors' opportunity cost of investment (or assume that that the risk-free interest rate is 0%.) The investors are risk neutral. Consider the following securitization options for the bank XYZ. 1 a. Suppose XYZ wants to securitize the portfolio of loans as a single security without communication. What is the market price of the security issued by XYZ? What is the net payoff to XYZ generated by this securitization? b. Suppose XYZ wants to securitize the portfolio of loans as a…
How do you calculate the price of a bond? It is: The sum of the present value of the face amount and the value of credit default swaps The sum of the future value of annuity of interest and the fair value of its inventory The sum of the present value of annuity of interest and the face amount of the bond The sum of the current value of the issuing corporation of accounts receivables None of the above.

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