Question 3.2 Cadbury Limited has a public traded debt (debentures) with a face value of R3 million. The coupon rate of the debenture is 8% and the current market interest rate is 11%. The debenture has 7 years to maturity. Calculate the present value of the debenture after 7 years Note that: the coupon rate will give a yearly interest amount of = 8% X R3million= R240 000 The current market interest (i) is used to calculate the present factor and formula is present factor= 1/(1+i)n round off the answer four decimal places

Question 3.2 Cadbury Limited has a public traded debt (debentures) with a face value of R3 million. The coupon rate of the debenture is 8% and the current market interest rate is 11%. The debenture has 7 years to maturity. Calculate the present value of the debenture after 7 years Note that: the coupon rate will give a yearly interest amount of = 8% X R3million= R240 000 The current market interest (i) is used to calculate the present factor and formula is present factor= 1/(1+i)n round off the answer four decimal places

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Q2. Fast and loose company has outstanding an 8%, four years, $1000-par value bond on which interest is paid annually. a) If the market required rate of return is 15%, what is the market value of the bond? b) What would be its market value if the market required return dropped to 12% to 8%? (10)
Problem 07.046 - IRR of a bond purchased at discount rate A mortgage bond issued by Automation Engineering is for sale for $8,700. The bond has a face value of $10,000 with a coupon rate of 7% per year, payable quarterly. What rate of return will be realized if the purchaser holds the bond to maturity 8 years from now? The rate of return will be 11% per year.
7. Imperial Oil decides to raise $500 million by issuing 7-year semi-annual bonds that pay interest of 3.5% per year. If the face value is $1,000 and the current yield is 4%, what is the market price of the bond? A. $924.15 B. $969.73 C. $987.13 D. $992.35 E. $1,032.76
QUESTION 2. Compute the intrinsic value of an 18% coupon, a 4-year maturity bond whose principal will be repaid in equal installments after a non-payment period of 2 years. The face value is 16. The market interest rate is forecast as 19% for the 1st year, 18% for the 2nd year, and 17% for the 3rd and 4th years.
QUESTION 2. Compute the intrinsic value of a 15% coupon, 4-year maturity bond whoseprincipal will be repaid in equal installments after the first 2 years in which there will be no principal payment.The face value is 1000₺ and the market interest rate is forecast as 16% for the first year and 17% for the secondyear and 18% for the third year.
Problem 2 (What is the solution?) A company has issued 10-year bonds, with a face value of 1,000,000 Php, in 1,000 units. Interest at 16% is paid quarterly. If an investor desires to earn 20% nominal interest on 100,000 Php worth of these bonds, what would the selling price have to be? Ans should be: 82,836 Php
#3 Cost of debt 3. Cost of debt. Kenny Enterprises has just issued a bond with a par value bf $1,000, a maturity of twenty years, and an 8% coupon rate with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. $920 b. $1,000 c. $1,080 d. $1,173
Question 2: If Jackson’s food’s bond has 6 years remaining to maturity. Interest is paid annually, bond has a par value of $1000 and the coupon interest rate is 8%, and the market interest rate of 9%. Calculate the bond’s price? If Jackson’s food’s bonds have 20 years remaining to maturity. Interest is paid annually, the bonds have a $ 1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. Calculate the yield to maturity? Differentiate between the discount bond and the premium bond
5. Chapter MC, Section 87, Problem 087 Algo Moerdyk Corporation's bonds have a 15-year maturity, a 10.15% semiannual coupon, and a par value of $1,000. The going interest rate (ra) is 7.90%, based on semiannual compounding. What is the band's price? a. $1,193.77 b. $1,195.72 c. $1,262.83 d. $1,230.60 e. $1,125.52
Question no 03 Term Finance Certificate (TFC): The TFC (a kind of Bond) of Company ABC is traded on the Karachi Stock Exchange for Rs 900. The Par Value of the TFC is Rs 1,000. The Coupon Rate is fixed at 15% pa. Coupons are paid annually. The TFC will Mature after exactly 2 Years (it is a 5 Year Bond issued 3 Years ago). What is the Overall Expected Rate of Return (ie. YTM) offered by this TFC? Market Price (Rs 900) is LESS than its Par Value (Rs 1,000). This Bond is selling at a Discount. Why? Possibly Interest Rate Risk. Market Interest Rate rises above TFC’s Fixed Coupon Rate so Market Price of the TFC falls below Par. Note: when Market Interest Rates rise, the Required Rate of Return (rD) for Investors rises. But, the Coupon Rate is fixed by Bond Issuer at the time of the issue. The Expected (or Promised) Rate of Return for Investors is the Yield to Maturity (or YTM). Calculate the Overall Return (or YTM) for…
K The outstanding debt of Berstin Corp. has eight years to maturity, a current yield of 9%, and a price of $80. What is the pretax cost of debt if the tax rate is 30%. A. 7.5% B. 10.8 % OC. 6.5 % OD. more information needed
Q24 A bond OMR 100 face value, 10 years to maturity, 4% annual coupon rate, and a annual required rate of return of 8%. What is the coupon payment amount of the Bond; assume that coupons are compounded monthly? a. OMR 2.000 b. OMR 1.000 c. OMR 0.333 d. OMR 4.000