Excel Applications for Accounting Principles
4th Edition
ISBN: 9781111581565
Author: Gaylord N. Smith
Publisher: Cengage Learning
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Chapter 11, Problem 7R
To determine
Compute the effective interest rate in order to achieve the stated
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Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $700.
a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed below or the bond price at each of the interest yields shown.
Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places.
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 9 percent, which is paid semiannually. The yield to maturity on the bonds is 8 percent annual interest. There are 15 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the price of the bonds based on semiannual analysis. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
b. With 10 years to maturity, if yield to maturity goes down substantially to 6 percent, what will be the new price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Chapter 11 Solutions
Excel Applications for Accounting Principles
Ch. 11 - The University Club recently issued 1,500,000 of...Ch. 11 - The bond pricing formula utilizes the NPV (Net...Ch. 11 - Prob. 3RCh. 11 - Prob. 4RCh. 11 - Use the worksheet to compute the bond issue price...Ch. 11 - Use the worksheet to compute the bond issue price...Ch. 11 - Prob. 7RCh. 11 - a. Reset the Data Section to its initial values....
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