In October 2016, the government of a country issued an index-linked bond redeemable at 109% in exactly one year time. Coupons were payable quarter-yearly in arrears (in Jan, Apr, Jul and Oct) at an annual rate of 9.0%. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. An investor liable to 29% income tax has purchased £8,000 nominal at issue and held it to redemption. The inflation index for the given period was as follows: Inflation indexes for 2016 - 2017 Month January April July October 2016 2017 100.1 108.8 102.5 110.5 104.2 113.1 106.7 114.4 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 5.3% per annum from this investment.

In October 2016, the government of a country issued an index-linked bond redeemable at 109% in exactly one year time. Coupons were payable quarter-yearly in arrears (in Jan, Apr, Jul and Oct) at an annual rate of 9.0%. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. An investor liable to 29% income tax has purchased £8,000 nominal at issue and held it to redemption. The inflation index for the given period was as follows: Inflation indexes for 2016 - 2017 Month January April July October 2016 2017 100.1 108.8 102.5 110.5 104.2 113.1 106.7 114.4 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 5.3% per annum from this investment.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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On 1 July 2022 Bombo Ltd issues $2 million in six-year bonds that pay interest every six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 6 per cent. Interest expense is determined using the effective-interest method. (PV tables are available at the end of this exam). Required Determine the issue price. Provide the journal entries at the dates below by showing relevant calculations in a table form. (i) 1 July 2022
On 1 July 2023 Tamasek Ltd issues convertible notes with a face value of $10 million. The convertible notes have a 20-year term and mature on 30 June 2043. Interest is payable semi-annually in arrears, i.e. on 31 December and 30 June each year, and the coupon rate of interest is 7.5% p.a., At around the same point in time, companies with a similar credit rating issue debt securities without a conversion option with a coupon rate of 10% p.a., payable semi-annually. Required: Determine the debt and equity components of the convertible notes issued using the residual valuation method. Prepare the entries of Tamasek Ltd to account for the convertible notes over the period 1 July 2023 to 30 June 2025.
A particular country's treasury issued a 35-year bond on October 15, 2014, paying 2.375% interest. Thus, if you bought $100,000 worth of these bonds you would receive $2,375 per year in interest for 35 years. An investor wishes to buy the rights to receive the interest on $100,000 worth of these bonds. The amount the investor is willing to pay is the present value of the interest payments, assuming a 5% rate of return. Assuming (incorrectly, but approximately) that the interest payments are made continuously, what will the investor pay? HINT [See Example 6.] (Round your answer to the nearest cent.)
In May 2000, the U.S. Treasury issued 30-year bonds with a coupon rate of 6.25%, paid semi-annually. A bond with a face value of $1,000 pays $31.25 (1,000 × 0.0625 / 2) every six months for the next 30 years; in May 2030, the bond also repays the principal amount, $1,000. 1. What is the value of the bond if, immediately after issue in May 2000, the 30-year interest rate increases to 7.5%? 2. What is the value of the bond if, immediately after issue in May 2000, the 30-year interest rate decreases to 5.0%? 3. On a graph in Excel, show how the value of the bond changes as the interest rate changes (plot the value as a function of the interest rate). At what interest rate is the value of the bond equal to its face value of $1,000?
X Ltd issued a loan on 1 January 2015 and classified it as measured at amortised cost. Terms: Nominal value GHS50 million Coupon rate 10% Term to maturity 3 years Purchase price GHS48 million Effective rate 11.67% Required: Show the double entry for each year to maturity of the bond. (Ignore loss allowances)
The table below lists the terms to maturity, the coupon rates, coupon payment dates and yields to maturity for three UK government bonds at the close of business on 7th January 2018. Gilts Prices Close of Business 7th January 2018 Maturity Date Coupon Rate Coupon Payment Dates Yield to Maturity 07/04/2022 3.75% 7th April, 7th October 0.784735% 20/08/2027 1.70% 20th February, 20th August 1.394042% 07/06/2035 4.00% 7th June, 7th December 1.868424% The coupon rates are quoted as annual rates. But UK government bonds divide the annual coupon into two equal instalments payable every six months. Calculate the accrued interest and dirty prices for each bond at the close of business on 7th January 2018.
On 1 july 2018 Bombo ltd issues 2 million in six year debentures that pay interset each six months at a coupon rate of 8 percent. At the time of issuing the securities, the market requires a return of 6 percent.Interest expense is determined using the effective interest method.Provide journal entries at 1 July 2018,30june 2019 and 30 june 2020.
On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 6 per cent. Interest expense is determined using the effective-interest method.Required: Determine the issue price of the debenture.
The table below lists the terms to maturity, the coupon rates, coupon payment dates and yields to maturity for three UK government bonds at the close of business on 7th January 2018. Gilts Prices Close of Business 7th January 2018 Maturity Date Coupon Rate Coupon Payment Dates Yield to Maturity 07/04/2022 3.75% 7th April, 7th October 0.784735% 20/08/2027 1.70% 20th February, 20th August 1.394042% 07/06/2035 4.00% 7th June, 7th December 1.868424% The coupon rates are quoted as annual rates. But UK government bonds divide the annual coupon into two equal instalments payable every six months. Work out the time periods to maturity, the periodic coupons and the periodic yields for each of the three bonds. Use the information to calculate the clean price of each bond. Your mathematical workings should be clearly outlined in your written presentation.
The table below lists the terms to maturity, the coupon rates, coupon payment dates and yields to maturity for three UK government bonds at the close of business on 7th January 2018. Gilts Prices Close of Business 7th January 2018 Maturity Date Coupon Rate Coupon Payment Dates Yield to Maturity 07/04/2022 3.75% 7th April, 7th October 0.784735% 20/08/2027 1.70% 20th February, 20th August 1.394042% 07/06/2035 4.00% 7th June, 7th December 1.868424% The coupon rates are quoted as annual rates. But UK government bonds divide the annual coupon into two equal instalments payable every six months. Work out the time periods to maturity, the periodic coupons and the periodic yields for each of the three bonds.
(b) In year 2017, KSM Berhad issues 1,000 convertible bonds with five-year term. The face value of the bond is RM1,200 per bond. Each bond is convertible at any time up to maturity into 500 ordinary shares. Interest is payable annually in arrears at a nominal interest rate of 2%. The prevailing market interest rate for similar debt without conversion option is 5% Required: (i) Discuss the types of Investments. (ii) Determine both the value of equity and liability components of the bond. (iii) Show relevant journal entries
On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires arate of return of 6 per cent. Interest expense is determined using the effective-interest method.Required:(i) Determine the issue price of the debenture(ii) Provide the journal entries at:

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