Use the following to answer questions 11 – 15 AL issues 4.0%, 20-year bonds with a face amount of $1,000,000 for $986,529.23. The market interest rate for bonds of similar risk and maturity is 4.1%. Interest is paid annually. 11. $ Determine the interest payment. (rounded to nearest dollar). $ Determine interest expense for the first interest 12. payment. What will happen to interest expense each interest payment? (Increase, decrease, remain constant) 13. What will happen to the bond liability (carrying value) each interest payment? (Increase, decrease, remain 14.
Use the following to answer questions 11 – 15 AL issues 4.0%, 20-year bonds with a face amount of $1,000,000 for $986,529.23. The market interest rate for bonds of similar risk and maturity is 4.1%. Interest is paid annually. 11. $ Determine the interest payment. (rounded to nearest dollar). $ Determine interest expense for the first interest 12. payment. What will happen to interest expense each interest payment? (Increase, decrease, remain constant) 13. What will happen to the bond liability (carrying value) each interest payment? (Increase, decrease, remain 14.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
Transcribed Image Text:Use the following to answer questions 11 – 15
AL issues 4.0%, 20-year bonds with a face amount of
$1,000,000 for $986,529.23. The market interest rate for
bonds of similar risk and maturity is 4.1%. Interest is paid
annually.
11.
$.
Determine the interest
payment.
12.
$
(rounded to nearest dollar).
Determine interest expense for the first interest
payment.
What will happen to interest expense each interest
payment? (Increase, decrease, remain constant)
13.
What will happen to the bond liability (carrying
value) each interest payment? (Increase, decrease, remain
constant).
14.
How much will the company pay out
$
when the bonds mature in 20 years (assume all interest
payments have already been paid)?
15.
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