Market Discount, Premium 1. X Corp issuesa bond on April 1, 2021, with a maturitydate of March 31, 2031. The redemptionamount is 100,000, and the bonds wereissued to the public. The first price paid forthe bond was $55,000, but most of thebonds issued sold for $50,000. The annualyield to maturity on the bond is 7%. Thebonds do not have a coupon. Assume thatB bought the bond on the date it wasissued for $50,000. Assume B sells thebond to D on September 30, for $50,500.Assume D sells the bond to F on December31, 2021, for $52,000. a. In computingoriginal issue discount, does every owner ofthe bond begin the calculation using thesame issue or revised issue price? b. Howmuch income did B recognize with respectto the bond in 2021? What was the natureof the income? c. How much income did Drecognize with respect to the bond in 2021?What was the nature of the income?

Capital gain Capital gain is the income received through the appreciation of the price of a…

Market Discount, Premium 1. X Corp issues a bond on April 1, 2021, with a maturity date of March 31, 2031. The redemption amount is 100,000, and the bonds were issued to the public. The first price paid for the bond was $55,000, but most of the

Market Discount, Premium 1. X Corp issues a bond on April 1, 2021, with a maturity date of March 31, 2031. The redemption amount is 100,000, and the bonds were issued to the public. The first price paid for the bond was $55,000, but most of the

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 9P

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Question

Market Discount, Premium 1. X Corp issues
a bond on April 1, 2021, with a maturity
date of March 31, 2031. The redemption
amount is 100,000, and the bonds were
issued to the public. The first price paid for
the bond was $55,000, but most of the
bonds issued sold for $50,000. The annual
yield to maturity on the bond is 7%. The
bonds do not have a coupon. Assume that
B bought the bond on the date it was
issued for $50,000. Assume B sells the
bond to D on September 30, for $50,500.
Assume D sells the bond to F on December
31, 2021, for $52,000. a. In computing
original issue discount, does every owner of
the bond begin the calculation using the
same issue or revised issue price? b. How
much income did B recognize with respect
to the bond in 2021? What was the nature
of the income? c. How much income did D
recognize with respect to the bond in 2021?
What was the nature of the income?

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