III. Bond Issuance A. Assuming this company already has bonds outstanding, calcu
ID: 2598009 • Letter: I
Question
III. Bond Issuance A. Assuming this company already has bonds outstanding, calculate the following: 1. The new value of the bond if overall rates in the market increased by 5% 2. The new value of the bond if overall rates in the market decreased by 5% 3. The value of the bond if overall rates in the market stayed exactly the same B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasonin
PART II: BOND ISSUANCE
III. Bond Issuance A. Assuming this company already has bonds outstanding, calculate the following: 1. The new value of the bond if overall rates in the market increased by 5% 2. The new value of the bond if overall rates in the market decreased by 5% 3. The value of the bond if overall rates in the market stayed exactly the same B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasonin
PART II: BOND ISSUANCE
Curent Bonds from Financial Statements Present Value PV ($2,963) Periods N 40 Semi-annual payment: 2036-2016 = 20 years *2 = 40 periods Interest I 2.9375 Interest paid semi-annually: 5.875%/2 = 2.9375% Payments PMT 0 This bond does not make regular PMT except for interest Future Value FV $9,433.58 CALCULATING FV (please see help on the right hand side) 1. The new value of the bond if overall rates in the market increased by 5% Present Value PV ($2,963) Periods N 40 Interest I 5.4375 Please adjust interest 5.875%+5% = 10.875%/2 = 5.4375% Payments PMT 0 Future Value FV $24,634.04 CALCULATING FV (please see help on the right hand side) 2. The new value of the bond if overall rates in the market decreased by 5% Present Value PV ($2,963) Periods N 40 Interest I 0.4375 Please adjust interest 5.875%-5% = 0.875%/2 = 0.4375% Payments PMT 0 Future Value FV $3,528.32 CALCULATING FV (please see help on the right hand side) 3. The value of the bond if overall rates in the market stayed exactly the same - identical to CURRENT BOND VALUE from Financial StatementsExplanation / Answer
1.$2963*0.054375*40=$24 634.04
2.$2963*0.004375*40=$3528.32
3.The same value as the current bond that is reflected on the financial statement.