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CHAPTER 10 PART 2 HOMEWORK ASSIGNMENT #1 QUESTIONS (Use notebook paper) 1. Describe the two major obligations incurred by a company when bonds are issued. 2 Tina Cruz and Dale Commons are discussing how the market price of a bond is determined. Tina believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is she right? Discuss. List two advantages of debt financing (issuing bonds) compared to equity financing (issuing common or preferred stock). Contrast the following types of bonds: (a) (b) (c) (d) 3. Secured and unsecured Term and serial Registered and bearer Convertible and callable EXERCISES (Use notebook paper) Lorance Corporation issued $400,000, 7%. 20-year bonds on December 31, 2017 for $360.415 at a time when the effective rate of interest was 8%. Interest is payable semiannually on June 30 and December 31. Lorance uses the effective- interest method to amortize bond premium or discount. Instructions (a) Show the set up of the basic bond information. (b) The bond price for this exercise is given as $360.415. Using present value discounting techniques. compute the bond price-you should get $360,415 (c) Why was this bond issued at a discount? LRNA Company issued $380,000, 7%, 10-year bonds on December 31, 2017 for 2. $408 268. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable semiannually on June 30 and December 31. LRNA uses the effective-interest method to amortize bond premium or discount. Instructions (a) Show the set up of the basic bond information. (b) The bond price for this exercise is given as $408.268. Using present value discounting techniques. compute the bond price-you should get $408.268. (c) Why was this bond issued at a premium? CHAPTER 10 PART 2 HOMEWORK ASSIGNMENT #1 QUESTIONS (Use notebook paper) 1. Describe the two major obligations incurred by a company when bonds are issued. 2 Tina Cruz and Dale Commons are discussing how the market price of a bond is determined. Tina believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is she right? Discuss. List two advantages of debt financing (issuing bonds) compared to equity financing (issuing common or preferred stock). Contrast the following types of bonds: (a) (b) (c) (d) 3. Secured and unsecured Term and serial Registered and bearer Convertible and callable EXERCISES (Use notebook paper) Lorance Corporation issued $400,000, 7%. 20-year bonds on December 31, 2017 for $360.415 at a time when the effective rate of interest was 8%. Interest is payable semiannually on June 30 and December 31. Lorance uses the effective- interest method to amortize bond premium or discount. Instructions (a) Show the set up of the basic bond information. (b) The bond price for this exercise is given as $360.415. Using present value discounting techniques. compute the bond price-you should get $360,415 (c) Why was this bond issued at a discount? LRNA Company issued $380,000, 7%, 10-year bonds on December 31, 2017 for 2. $408 268. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable semiannually on June 30 and December 31. LRNA uses the effective-interest method to amortize bond premium or discount. Instructions (a) Show the set up of the basic bond information. (b) The bond price for this exercise is given as $408.268. Using present value discounting techniques. compute the bond price-you should get $408.268. (c) Why was this bond issued at a premium
