The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Using an assumption of semiannual interest payments: a. Compute the price of a bond. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Answers

Answer 1

Answer: $885.30

Explanation:

Based on the information given, let's assume the face value of bond is $1,000, then the annual interest payment will be:

= 10% of $1,000

= 10% × $1000

= $100

If the semi annual interest payment is $50, then the price of the bond will be:

= [(50 × PVIFA(20, 6%)] + [$1,000 × PVIF(20, 6%)]

We will use the financial calculator and we'll get:

= $573.50 + $311.80

= $885.30

Therefore, the price of the bond is $885.30

Related Questions

Flash ECard Manufacturing manufactures software parts for the computer software systems that produce ecards. The Flash II part is currently manufactured in the Computer Department. The Data Department also produces the part and the plant has excess capacity to produce the Flash II part. The current market price of the Flash II part is $700. The managerial accountant reported the following manufacturing costs and variable expense data: Flash ECard Manufacturing Manufacturing Costs and Variable Expense Report Flash Component Direct materials $810 Direct labor $160 Variable manufacturing overhead $140 Fixed manufacturing overhead (current production level) $185 Variable selling expenses (only incurred on sales to outside consumers) $136 If the highest acceptable transfer price is $700 in the market, what is the lowest acceptable inhouse price the Data Department should receive to produce the part inhouse at the Computer Department? "810"

Answers

Answer:

the lowest acceptable inhouse price the Data Department is $1,110

Explanation:

The computation of the lowest acceptable inhouse price the Data Department is shown below:

= Direct materials + direct labor + Variable manufacturing overhead

= $810 + $160 + $140

= $1,110

Hence, the lowest acceptable inhouse price the Data Department is $1,110

The above formula should be applied for determining the lowest acceptable inhouse price is as follows:

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