What is the relationship between a bond's price and its yield to maturity?

What is the relationship between a bond's price and its yield to maturity?

Click here for the solution: What is the relationship between a bond's price and its yield to maturity?

Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications

E 14-8 Investor; straight-line method

(Note: This is a variation of the previous exercise modified to consider the investor's perspective.) Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications.

Required:
1. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2011.
2. Prepare the journal entry to record interest revenue on June 30, 2011.
3. Prepare the journal entry to record interest revenue on December 31, 2018.

Click here for the solution: Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications

Circus City issued an 8%, 10-year $2,000,000 bond to build a monorail mass transit system

Problem 18-13 Preparing Government-wide Financial Statements

Circus City issued an 8%, 10-year $2,000,000 bond to build a monorail mass transit system. The city received $1,754,217 cash from the bond issuance on January 1, 2008. The bond yield is 10%. Interest is paid annually on December 31 of each year. Disclosure information about capital assets is reported below.

AND SO ON

Required:
Using the information above, prepare the statement of activities and the statement of net assets on a government-wide basis (using full accrual accounting). The beginning fund balance in the government-wide Statement of Net Assets is $2,686,283.

Click here for the solution: Circus City issued an 8%, 10-year $2,000,000 bond to build a monorail mass transit system

(a) What are long-term liabilities? Give two examples. (b) What is a bond?

(a) What are long-term liabilities? Give two examples.
(b) What is a bond?


Click here for the solution: (a) What are long-term liabilities? Give two examples. (b) What is a bond?

Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?


Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

E14-5 Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount

E14-5 (Entries for Bond Transactions—Effective-Interest) Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2011.
(c) The accrual of interest and the related amortization on December 31, 2011.

Click here for the solution: Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount

The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding

The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 12 percent, the interest rates on similar issues have declined to 10.5 percent. The bonds were originally issued for 20 years and have 15 years remaining. The new issue would be for 15 years. There is an 8 percent call premium on the old issue. The underwriting cost on the new $20,000 issue is $570,000, and the underwriting cost on the old issue was $400,000. The company is in a 35 percent bracket, and it will use a 7 percent discount rate (rounded after tax cost of debt) to analyze the refunding decision. Should the old issue be refunded with new debt?

Click here for the solution: The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding

Distinguish between: (a) convertible and callable bonds, and (b) serial and term bond

Distinguish between: (a) convertible and callable bonds, and (b) serial and term bond

Click here for the solution: Distinguish between: (a) convertible and callable bonds, and (b) serial and term bond

Prepare a debt amortization schedule for a bond issued at discount

Prepare a debt amortization schedule for a bond issued at discount. Assume that the bond matures in 12 years with market interest rate at time of issue—10% annually and 5% semiannually. The stated interest rate is 8%. The interest is paid semiannually.

Click here for the solution: Prepare a debt amortization schedule for a bond issued at discount