Two types of bonds are offered to you for bond investment considerations: P10,000, 5-year, 10% p.a. Debenture bond issued by Yoo Hoo corp. The interest payable twice a year. The bond has four years remaining term and is offered to you at 98-1/2. P5,000, 10-year, 10% p.a. Mortgage bond issued by Khoo Coo, Inc. Interest is paid annually. The bond still has 7 years remaining life before its maturity. It is offered to you by a friend at 101-3/4. It has been your policy that your desired rate of return for unsecured investment should be 12% p.a, and for secured investment will earn a minimum of 8% p.a. 1. Based on the above information, compute the exact yield to maturity (YTM) of the two bonds offered. 2. Which bond you wish to invest? Explain thoroughly why.

Two types of bonds are offered to you for bond investment considerations: P10,000, 5-year, 10% p.a. Debenture bond issued by Yoo Hoo corp. The interest payable twice a year. The bond has four years remaining term and is offered to you at 98-1/2. P5,000, 10-year, 10% p.a. Mortgage bond issued by Khoo Coo, Inc. Interest is paid annually. The bond still has 7 years remaining life before its maturity. It is offered to you by a friend at 101-3/4. It has been your policy that your desired rate of return for unsecured investment should be 12% p.a, and for secured investment will earn a minimum of 8% p.a. 1. Based on the above information, compute the exact yield to maturity (YTM) of the two bonds offered. 2. Which bond you wish to invest? Explain thoroughly why.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter22: Corporations: Bonds

Section: Chapter Questions

Problem 3MC

See similar textbooks

Similar questions

A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?
On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________. A. $120,000 B. $60,000 C. $7,500 D. $15,000
On January 1, a company issued a 5-year $100,000 bond at 6%. Interest payments on the bond of $6,000 are to be made annually. If the company received proceeds of $112,300, how would the bonds issuance be quoted? A. 1.123 B. 112.30 C. 0.890 D. 89.05
Your company issues $3,500,000 bonds at 7% interest with annual interest payments. Bonds have a maturity date in 30 years. At the time of issue, the market rate is 5%. а. Calculate the issue price of the bond. b. Record the journal entry for the issue of the bond С. Record the journal entry for the first interest payment d. How much interest is recorded on the income statement in Year 1? е. Record the journal entry for the final entry at the bond maturity date.
Two types of bonds are offered to you for bond investment considerations: P10,000, 5-year, 10% p.a. Debenture bond issued by Yoo Hoo corp. The interest payable twice a year. The bond has four years remaining term and is offered to you at 98-1/2. P5,000, 10-year, 10% p.a. Mortgage bond issued by Khoo Coo, Inc. Interest is paid annually. The bond still has 7 years remaining life before its maturity. It is offered to you by a friend at 101-3/4. It has been your policy that your desired rate of return for unsecured investment should be 12% p.a, and for secured investment will earn a minimum of 8% p.a. Based on the above information, compute the value of the bond for the two types of bonds offered.
You purchase a $10,000 bond with a bond rate of 6% per year payable semiannually for 2 years. You pay $9,600 for the bond. Which statement is correct?
Mountain Excursions issues bonds due in 15 years with a stated interest rate of 11% and a face value of $180,000. Interest payments are made semi-annually. The market rate for this type of bond is 12%. Using a financial calculator or Excel, calculate the issue price of the bonds. Multiple Choice 1. $193,835. 2. $167,612. 3. $180,000. 4. $100,313.
Mountain Excursions issues bonds due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi- annually. The market rate for this type of bond is 8%. Calculate the issue price of the bonds. (Use Excel or a financial calculator.) Multiple Choice $139,609 $214,877 $186,410 $200,000
Karson Compahy. issues 10-year bonds maturity, face value of $200,000 and 8% interest rate. If the bonds are issued at 180,000 how much do you expect the market interest rate: Select one: Oa. % 6 O b. % 8 o C. % 4 Od %10
San Miguel Company's 18-year, $1,000 par value bonds pay 6.5 percent interest annually. The market price of the bond is $1,105, and your required rate of return is 8.5 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you given your required rate or return. c. Should you purchase the bond? Why or why not? (*You must show your calculation process as well.)
Happy Hollow, LLC issues $50,000 bonds at 20% interest with quarterly interest payments. Bonds have a maturity date in 5 years. At the time of issue, the market rate is 16%. а. Calculate the issue price of the bond b. How much total interest does the bondholder receive over the life of the bond?
Fold in the Cheese, Inc. is issuing $850000 of 8% 10-year bonds. These bonds will pay semi-annual interest payments. The market interest rate is currently 6%. Required: Compute what your bonds are worth. Round all calculations to 2 decimals. Record the sale of the bond with a journal entry. Record the journal entry for your first interest payment.