Mgmt_200_Spring_2008_solutions_3-26-08(4,1)

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Management 200 – Introductory Financial Accounting– Spring 2008 Krannert School of Management - Purdue University Solutions to class assignment for March 26, 2008 E10–2. The AT&T bonds have a coupon interest rate of 6.5%. If bonds with a $10,000 face value were purchased, the issue price would be $8,950 and they would provide a cash yield of 7.3%. A decline in value after issuance would have no impact on AT&T’s financial statements. E10–4. CASE A: $100,000 x 0.6806. ................................................................. $ 68,060 $8,000 x 3.9927. ..................................................................... 31,942 Issue price (market and stated rate same).
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Unformatted text preview: .............................. $100,002 (at par; $2 rounding error) CASE B: $100,000 x 0.7473. ................................................................. $ 74,730 $8,000 x 4.2124. ..................................................................... 33,699 Issue price (market rate less than stated rate). ........................ $108,429 (at a premium) CASE C: $100,000 x 0.6209. ................................................................. $ 62,090 $8,000 x 3.7908. ..................................................................... 30,326 Issue price (market rate more than stated rate). ...................... $ 92,416 (at a discount)...
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