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CHAPTER 20
LONGTERM DEBT
Solutions to OddNumbered Questions and Problems
NOTE: All endofchapter problems were solved using a spreadsheet. Many problems require
multiple steps. Due to space and readability constraints, when these intermediate steps are
included in this solutions manual, rounding may appear to have occurred. However, the final
answer for each problem is found without rounding during any step in the problem.
Basic
1.
Accrued interest is the coupon payment for the period times the fraction of the period that
has passed since the last coupon payment. Since we have a semiannual coupon bond, the
coupon payment per six months is onehalf of the annual coupon payment. There are five
months until the next coupon payment, so one month has passed since the last coupon
payment. The accrued interest for the bond is:
Accrued interest = $72/2 × 1/6 = $6
And we calculate the clean price as:
Clean price = Dirty price – Accrued interest = $1,140 – 6 = $1,134
3.
a.
The price of the bond today is the present value of the expected price in one year. So,
the price of the bond in one year if interest rates increase will be:
P
1
= $60(PVIFA
7%,58
) + $1,000(PVIF
7%,58
)
P
1
= $859.97
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Fall '09 term at UMBC.
 Fall '09
 Halstead
 Debt

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