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
Pecos Canyon Winery is a small vineyard/winery located in the Big Bend area of West Texas. The initial cabernet grape vines were planted in the spring of 2004 with the first wine p

Contract Accounts It is a separate account such is maintained and opened for every contract undertaken for the reasons of accumulating cots.  Every contract is given a number

Ed Mettway was concerned about his firm''s ability to acquire the necessary property, plant, and equipment to take advantage of steadily increasing sales. Touring Enterprises, esta

Time Analysis - Cost Accumulation This is generally achieved via having the employee complete a daily or weekly timesheet or via contain job cards or piecework tickets. As whe

company XY produces a single product ''XY1" selling price per unit 15, direct materials per unit 4 direct labour per unit 3 variable overhead per unit 2 fixed overhead incurred 12

what are importance of cost classification

how marginal cost of a product is determined?

What type of activity could a company engage in to improve their cash flows in their Cash Flows Statement? Is this ethical? Could borrowing money make the cash from operations be

Break-Even Chart This is a diagrammatic presentation of the relationship among costs, prices, expenses and the sales volume. A break-even chart expresses revenue and expens

Valuation of Inventory or Closing and Issues Stocks Valuation of inventory aims on attaching a monetary value in the issued or stores for production. It is useful in producing