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Ingram Systems Ltd. has an outstanding issue of $1,000- par value bonds with a 12% coupon interest rate. The issue pays interest annually and has
Ingram Systems Ltd. has an outstanding issue of $1,000- par value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.
- Why is it important for management accountants to understand the bonds valuation process?
- What are the three key inputs to the valuation process?
- If bonds of similar risk are currently earning a 10% rate of return, how much should the Ingram systems bond sell for today.
- Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Ingram systems bond.
- If the required return were at 12% instead of 10%, what would be the current value of Ingram systems bond? Contrast this finding with your findings in part (a) and discuss.
- If the required return on a bond differs from its coupon interest rate, describe the behaviour of the bond value over time as the bond moves towards maturity.
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