Calculate the price of regular bonds, Cost Accounting

XYZ Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will have coupon rate at 10%, payable semi-annually, with face value of $1,000 each and maturity of 5 years.  The zero coupon bonds will be the same as the regular bonds except that there is no coupon attached to these bonds, i.e. no interest payment throughout the life of the zero coupon bond.

Current market interest rate for 5-year bond of similar bond issuers like XYZ Inc. is 8%.  Assume there is no issuance cost.

Requirements: Show your calculation

a. Calculate the price of regular bonds at the time of issuance.

b. Based on $1,000 face value for each bond, what is the minimum number of regular bonds to be issued to raise the required external financing of $5,000,000?

c. Calculate the price of zero coupon bonds at the time of issuance.

d. Based on $1,000 face value for each bond, what is the minimum number of zero coupon bonds to be issued to raise the required external financing of $5,000,000?

e. Assuming market interest rate remains unchanged in next 2 years, calculate the bond price at that time and explain the changes in price for each of these bonds.

f. Calculate the percentage of price change of each of the bonds between the time of issuance and 2 years after such time, and discuss why each of these bond prices changes. 

 

 

Posted Date: 2/19/2013 2:28:53 AM | Location : United States







Related Discussions:- Calculate the price of regular bonds, Assignment Help, Ask Question on Calculate the price of regular bonds, Get Answer, Expert's Help, Calculate the price of regular bonds Discussions

Write discussion on Calculate the price of regular bonds
Your posts are moderated
Related Questions
Q. Calculate break-even level of sales volume and revenue? Z-Boxes sell for £299 and their variable production cost is £99. Research and development, and fixed production overh

Blox ($) Shapez ($) Direct material per unit 10 23 Direct labour per unit 19 32 Manufacturing overhead per unit 7 10 Selling & Admin. expenses per unit 17 31 T

#question.ABC Corportaion produces and sell two products. In the most recent month, Product 123 had sales of $33,000 and variable expenses of $15,840. Product 245 had sales of $42,

Estimate Fixed Overhead Variances Referring to data, we can estimate the fixed overhead variances as given below: Budget for December 2003;


EARNINGS AFTER TAX-1500000 NUMBER OF EQUITY SHARE OUTSTANDING-300000 DIVIDEND PAID 600000 PRICE-EARNING RATIO-101 RATE OF RETURN ON INVESTMENT-20% WHAT IS OPTIMUM DIVIDEND PAY OUT

Purposes of Overhead Cost Analysis There are a number of situations whether the analysis of overhead costs will assist in the satisfactory evaluation of the relevant cost data

Marginal analysis finds to equalize the cost of producing one more item (marginal costs) with the revenue gained from selling one more item (marginal revenue).

Sensitivity Analysis The only certain thing is that nothing is sure thing. Cost structures can be anticipated to vary over the time period. Management should vigilantly analyze

Apportionment of Overheads Apportionment of overheads occurs whereas the net value of an overhead item is shared among more or two cost centers that employ the overheads. Th