Principles of Accounting Volume 1
19th Edition
ISBN: 9781947172685
Author: OpenStax
Publisher: OpenStax College
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Textbook Question
Chapter 13, Problem 5Q
What do you have to do to the interest rate and years of maturity if a
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d. If you hold the bonds for one year, and interest rates do not change, what total rate of return will you earn, assuming that you pay the market price? Why is this different from the current yield and YTM?
What is interest rate (or price) risk? Which bondhas more interest rate risk: an annual payment1-year bond or a 10-year bond? Why?
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
Chapter 13 Solutions
Principles of Accounting Volume 1
Ch. 13 - An amortization table ________. A. breaks each...Ch. 13 - A debenture is ________. A. the interest paid on a...Ch. 13 - The principal of a bond is ________. A. the person...Ch. 13 - A convertible bond can be converted into ________....Ch. 13 - On January 1, a company issued a 5-year $100,000...Ch. 13 - On July 1, a company sells 8-year $250,000 bonds...Ch. 13 - On January 1 a company issues a $75,000 bond that...Ch. 13 - On October 1 a company sells a 3-year, $2,500,000...Ch. 13 - On April 1 a company sells a 5-year, $60,000 bond...Ch. 13 - The effective-interest method of bond amortization...
Ch. 13 - When a bond sells at a discount, the carrying...Ch. 13 - The International Financial Reporting Standards...Ch. 13 - The cash interest payment a corporation makes to...Ch. 13 - Whirlie Inc. issued $300,000 face value, 10% paid...Ch. 13 - Naval Inc. issued $200,000 face value bonds at a...Ch. 13 - Keys Inc. issued 100 bonds with a face value of...Ch. 13 - Huang Inc. issued 100 bonds with a face value of...Ch. 13 - OShea Inc. issued bonds at a face value of...Ch. 13 - Gingko Inc. issued bonds with a face value of...Ch. 13 - The difference between equity financing and debt...Ch. 13 - What is the difference between callable and...Ch. 13 - What is the difference between serial bonds and...Ch. 13 - What is a junk bond?Ch. 13 - How are savings bonds different from a corporate...Ch. 13 - What do you have to do to the interest rate and...Ch. 13 - An amortization table/schedule is created to...Ch. 13 - In the amortization table, how is the amortization...Ch. 13 - Does issuing a bond at a discount increase or...Ch. 13 - What kind of account is the Discount on Bonds...Ch. 13 - Why is the effective-interest method of...Ch. 13 - If there is neither a premium nor discount...Ch. 13 - When do you use the Bond Discount Account?Ch. 13 - A company issued bonds with a $100,000 face value,...Ch. 13 - A company issued $100,000, 5-year bonds, receiving...Ch. 13 - Does interest expense increase or decrease when a...Ch. 13 - Halep Inc. borrowed $30,000 from Davis Bank and...Ch. 13 - Beluga Inc. issued 10-year bonds with a face value...Ch. 13 - Krystian Inc. issued 10-year bonds with a face...Ch. 13 - On January 1, 2018, Wawatosa Inc. issued 5-year...Ch. 13 - Diana Inc. issued $100,000 of its 9%, 5-year bonds...Ch. 13 - Oak Branch Inc. issued $700,000 of 5%, 10-year...Ch. 13 - On Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds...Ch. 13 - Medhurst Corporation issued $90,000 in bonds for...Ch. 13 - On Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds...Ch. 13 - Pinetop Corporation issued $150,000 10-year bonds...Ch. 13 - Medhurst Corporation issued $90,000 in bonds for...Ch. 13 - Sharapovich Inc. borrowed $50,000 from Kerber Bank...Ch. 13 - Waylan Sisters Inc. issued 3-year bonds with a par...Ch. 13 - Smashing Cantaloupes Inc. issued 5-year bonds with...Ch. 13 - Chung Inc. issued $50,000 of 3-year bonds on...Ch. 13 - Haiku Inc. issued $600,000 of 10-year bonds with a...Ch. 13 - Waldron Inc. issued $400,000 bonds with a stated...Ch. 13 - Willoughby Inc. issued 100 bonds with a face value...Ch. 13 - Allante Corporate issued 50 bonds with a face...Ch. 13 - Roo Incorporated issued 50 bonds with a face value...Ch. 13 - Piedmont Corporation issued $200,000 of 10-year...Ch. 13 - Lunar Corporation issued $80,000 in bonds for...Ch. 13 - On January 1, 2018, King Inc. borrowed $150,000...Ch. 13 - On July 1, Somerset Inc. issued $200,000 of 10%,...Ch. 13 - Eli Inc. issued $100,000 of 8% annual, 5-year...Ch. 13 - Evie Inc. issued 50 bonds with a $1,000 face...Ch. 13 - Volunteer Inc. issued bonds with a $500,000 face...Ch. 13 - Aggies Inc. issued bonds with a $500,000 face...Ch. 13 - Sub-Cinema Inc. borrowed $10,000 on Jan. 1 and...Ch. 13 - Charleston Inc. issued $200,000 bonds with a...Ch. 13 - Starmount Inc. sold bonds with a $50,000 face...Ch. 13 - Irving Inc. sold bonds with a $50,000, 10%...Ch. 13 - Dixon Inc. issued bonds with a $500,000 face...Ch. 13 - Edward Inc. issued bonds with a $500,000 face...Ch. 13 - Below is select information from two, independent...Ch. 13 - Assume you are a newly-hired accountant for a...
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- If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain.arrow_forwardHow would someone calculate the yield to maturity of a bond? How about for a three month treasury bill?arrow_forwardHow can the behavior of market interest rates and bond returns over the past 50 years be described? Do swings in market interest rates have any bearing on bond returns?arrow_forward
- If you expect interest rates to rise, do you want to buy bonds now?arrow_forwardTrue or false? the YTM is the annual return that an investor earns on a bond of the investor purchases the bond today and sells it before maturityarrow_forwardWhat would be the value of this bond if it paid interest semiannually? was missed ?arrow_forward
- If interest rates rise after a bond issue, what would happen to the bond's price and YTM? Does the time to maturity affect the extend to which interest rates changes affect the bond price? (Please give an example)arrow_forwardDoes buying and selling of debt instruments maturing in one year or less, a characteristic of money market?arrow_forwardPlease correct answer and step by step solutionsarrow_forward
- How do you calculate the current value (price) of a bond? Explain through the formula and its description in your own words. How is the bond price affected by the change in interest rates and why? Simple answers please.arrow_forwardAccording to the expectations theory of the term structure of interest, if the 1-year bond rate today is 6.50% p.a., the 2-year bond rate today is 6.70% p.a., and the 3-year bond rate today is 7.00%, what will be the 2-year bond rate next year?arrow_forwardIn order to measure the purchase price of an investment in bonds, which of the following time value of money concepts is used? Group of answer choices the future value of $1 the present value of an ordinary annuity all of these the future value of an ordinary annuityarrow_forward
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