Chapter 15, Problem 4E

To determine

Lump sum issue of shares and bonds: A corporation may issue units, which may consist of a combination of shares and bonds. The bonds carry an interest rate and the shares are traded in the stock market. When such units are sold for a lump sum amount, the amount has to be allocated to bonds and shares on a predetermined basis. The methods used for such allocation is proportional method and incremental method.

To determine the allocation of lump sum amount.

Given information:

Units: 10,000.

Par: $500.

Rate: 12%.

Shares: 10.

Par: $5.