The bond’s issue price. Introduction: A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year. If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond .

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Answer 1

Question

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

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Answer 2

Question

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

Expert Solution & Answer

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Answer 3

Question

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

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Answer 4

Question

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

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Answer 5

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

Answer 6

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Answer 7

Chapter 7, Problem 25QP

a)

Summary Introduction

To determine: The bond’s issue price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, until the date of maturity, the investor gets the coupons, every year.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Answer 8

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

Answer 9

b)

Summary Introduction

To determine: The interest deduction in the first and last year based on “Internal revenue service” (IRS) amortization rule.

Introduction:

The “Internal revenue service” (IRS) amortization rule requires the company to amortize the zero coupon bonds and consider the difference between the ending value of the bond and beginning value of the bond as an interest deduction.

Answer 10

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

Answer 11

c)

Summary Introduction

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

Answer 12

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

Answer 13

d)

Summary Introduction

To determine: The interest amortization preferred by the company.

Answer 14

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Answer 15

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Answer 16

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Answer 17

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To determine: The interest deduction in the first and last year based on straight-line amortization. Introduction: The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.

To determine: The interest amortization preferred by the company.

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Chapter 7 Solutions

To determine: The interest deduction in the first and last year based on straight-line amortization.

Introduction:

The straight-line amortization method amortizes the total interest in equal installments over the life of the bond.