Business, 15.04.2020 01:34 luigiguitar8668

Your company issued 1,000, 3.8% bonds (face value of each bond is $1,000) at 101.8250 on July 1st, 2019. The bonds are due on July 1, 2024, with interest payable each January 1 and July 1. The market rate at the time of the bond issuance was 3.4%. Use the effectiveinterest method to calculate both the interest expense and the amortization of the bond discount when each interest payment is made.

Answers: 2

Show answers

Answers

In this problem, 3.8% coupon bearing bond of $1,000 each has been issued. Total 1000 bonds are issued. Each has been issued at 101.8250%. So total amount realized on issue is $1,018,250. It is the value of bond calculated at market rate. Value of a bond is the sum of the present value of cash flows. Here bond has 5 years duration. Interest is paid semiannually. So after every six month, interest payable is -

Calculate present value of 10 such semiannual payment plus principal amount payable at the end of 5th year. Add them. The amount will be current issue price of bond.

So premium amount at the time of issue is-

This premium will be amortized in 5 years period along with each semi annual interest payment is made. So on maturity, no premium amount will be left.

Here amortization will be made at effective rate. Here effective rate will mean market rate. It is 3.4% i.e. 1.7% semi annually. This effective rate is applied on carry balance of bond. Carry balance of bond is nominal value of bond plus unadjusted portion of premium.

Consider the table below. It shows calculation of effective interest rate. First effective rate is 1.7% on carry value of $1,018,250. It is $17,310. But interest actually payable is $19,000. So difference is amortized portion of premium. It is-

This amortized portion will reduce premium balance. So effective carry value of bond in the book will be

Second semiannual effective interest will be 1.7% on $1,016,560. This process will continue for 10 such semi-annual payments. Thus after 10 payments, premium account will have zero balance. Only $1,000,000 balance will appear in 3.8% bond account. It will be finally paid off by debit in 3.8% bond account and credit in cash account.

Explanation:

Answer from: Quest

answer; a set of mutual funds with similar risk characteristics to your mutual fund;

Answer from: Quest

answer; charters;

Another question on Business

Business, 22.06.2019 08:30

Uppose that the federal reserve purchases a bond for $100,000 from donald truck, who deposits the proceeds in the manufacturer’s national bank. what will be the impact of this purchase on the supply of money? the money supply will increase by $100,000. the money supply will increase by $80,000. the money supply will increase by $500,000. this action will have no effect on the money supply. if the reserve requirement ratio is 20 percent, what is the maximum amount of additional loans that the manufacturer’s bank will be able to extend as the result of truck’s deposit? the maximum additional loans is $100,000. the maximum additional loans is $80,000. the maximum additional loans is $20,000. the maximum additional loans is $500,000. given the 20 percent reserve requirement, what is the maximum increase in the quantity of checkable deposits that could result throughout the entire banking system because of the fed’s action? this action will have no effect on the money supply. the money supply will eventually increase by $80,000. the money supply will eventually increase by $500,000. the money supply will eventually increase by $100,000.

Answers: 1

Answer

Business, 22.06.2019 12:10

Profits from using currency options and futures.on july 2, the two-month futures rate of the mexican peso contained a 2 percent discount (unannualized). there was a call option on pesos with an exercise price that was equal to the spot rate. there was also a put option on pesos with an exercise price equal to the spot rate. the premium on each of these options was 3 percent of the spot rate at that time. on september 2, the option expired. go to the oanda.com website (or any site that has foreign exchange rate quotations) and determine the direct quote of the mexican peso. you exercised the option on this date if it was feasible to do so. a. what was your net profit per unit if you had purchased the call option? b. what was your net profit per unit if you had purchased the put option? c. what was your net profit per unit if you had purchased a futures contract on july 2 that had a settlement date of september 2? d. what was your net profit per unit if you sold a futures contract on july 2 that had a settlement date of september 2

Answers: 1

Answer

Business, 22.06.2019 15:30

On january 15, the end of the first biweekly pay period of the year, north company’s payroll register showed that its employees earned $32,000 of sales salaries. withholdings from the employees’ salaries include fica social security taxes at the rate of 6.2%, fica medicare taxes at the rate of 1.45%, $3,000 of federal income taxes, $772 of medical insurance deductions, and $260 of union dues. no employee earned > $7,000 in this first period. prepare the journal entry to record north company’s january 15 (employee) payroll expenses and liabilities.

Answers: 3

Answer

Business, 22.06.2019 19:00

Read the scenario. alfonso is 19 years old and has a high school diploma. recently, he was promoted to assistant manager at the fast-food restaurant where he has worked since the age of sixteen. his dream is to become the restaurant’s manager. what is his best option for achieving his dream? he should find another job and work his way up to a higher position. he should hope that his manager transfers to another location and that he is his replacement. he should attend classes at the local college to receive training in management. he should work hard, work longer hours, and remain assistant manager.

Answers: 2

Answer

You know the right answer?

Your company issued 1,000, 3.8% bonds (face value of each bond is $1,000) at 101.8250 on July 1st, 2...

Questions