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What is a mortgage bond

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Reference no: EM132544972

The Alphabet Toy Company has plans for a plant expansion and needs to raise additional capital to pay for the construction. The company is considering issuing seven-year, 6% first mortgage bonds with a par value of $800,000. The bonds will pay interest semi-annually.

Required:

Question a. Calculate the amount of cash the company will receive if the bonds are sold at a yield of:

1. 6%

2. 8%

3. 4%

Question b. Prepare the journal entry Alphabet Toy would record at the time of the issuance under each of the alternatives yields. Also prepare the journal entries to record the interest expense for the first two periods under each alternative.

Question c. What is a mortgage bond? Explain how the fact that this is a mortgage bond would affect the interest rate dictated by the market (yield rate).

Reference no: EM132544972

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