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The bonds have a stated interest rate of 5 percent and will mature on December 31, 2014.The market value of the bonds as of December 31, 2012, is $186,479.
a. Compute the effective interest rate when the bonds were issued.
b. What effective rate would an investor be earning by purchasing the bonds on December 31, 2012, at the market price and holding the bonds until maturity?
c. Assume that Cohort reported net income of $38,500 for the period ending December 31, 2012. Adjust net income for the gain or loss experienced by the company on these outstanding bonds due to the change in market interest rates. Ignore income taxes. Do you believe that the gain or loss represents an\ increase or a decrease in the wealth of the company? Why?
d. Assume that Cohort retired the bonds by purchasing them on the open market. Record the journal entry, and compare the gain or loss recognized on the retirement with the gain or loss computed in (c) above. Discuss.
What are the two reasons banks demand reserves? Why does an increase in the federal funds rate decrease the quantity of reserves demanded? At what interest rate does the demand curve for reserves become perfectly elastic?
The riskless rate is 3.4%. Find the value of the cash offer, and the value of the note. Should Ellen take the cash or the note?
You are the financial analyst for a manufacturer of tennis rackets that has identified a graphite-like material that it is considering using in its rackets.
The following properties are available at the average temperature of the air, 300 K
If a yield curve looks like the one below, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions about the inflation rate in thefuture?
Gleason Advertising Company's trial balance at december 31 shows advertising supplies $6,700 and advertising supplies expence 0. On Deceber 31, there are 1, 700 of supplies on hand. Prepare the adjusting entry at December 31, and using T accounts,..
AirJet Best Parts Inc. is now considering that the appropriate discount rate for the new machine should be the cost of capital and would like to determine it. You will assist in the process of obtaining this rate.
Sales, costs, and net income would not be affected, and the firm would maintain the same debt ratio (but with less total debt). By how much would the reduction in assets improve the ROE?
Explain why a yield curve can be negatively sloped. Would interest rates be abnormally high or low?- What would be the overall expectation of the direction of future short- term interest rates?
Imagine that you buy a house as a rental property. The cost of buying the house was $350,000, of which $75,000 is the value of the land. Approximately how much can be used as a federal income tax deduction per year for depreciation?
Determine the mass-transfer coefficient for the process at the current conditions of operation. You may assume that the gas phase represents a dilute system.
A researcher has received back 52% of questionnaires sent out to three companies. In groups, consider what methods you could suggest to contact non-responders to request they complete and return the questionnaire.
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