c. $198.89 d. $257.52 e. $254.84 Callable zero coupon bond Answer: c Diff: M 7A-. Recycler Battery Corporation (RBC) issued zero coupon bonds 5 years ago at a price of $214.50 per bond. RBC’s zeros had a 20-year original maturity, with a $1,000 par value. The bonds were callable 10 years after the issue date at a price 7 percent over their accrued value on the call date. If the bonds sell for $239.39 in the market today, what annual rate of return should an investor who buys the bonds today expect to earn on them? a. 15.7% b. 12.4% c. 10.0% d. 9.5% e. 8.0% Taxes on zero coupon bond Answer: a Diff: M 7A-. Today is and you just purchased a 7-year, zero coupon bond with a face value of $1,000 and a yield to maturity of 6 percent. Your tax rate is 30 percent. How much in taxes will you have to pay on the bond the first year that you hold it? a. $ 11.97 b. $211.49 c. $ 12.69 d. $ 39.90 e. $199.52 Taxes on zero coupon bond Answer: e Diff: M N 7A-. A zero coupon bond with a face value of $1,000 matures in 15 years. The bond has a yield to maturity of 7 percent. If an investor buys the bond at the beginning of the year, how much money in taxes will the investor have to pay on the zero coupon bond the first year. Assume that the investor has a 25 percent marginal tax rate. a. $5.25 b. $5.44 c. $5.99 d. $6.25 e. $6.34 Accrued value and interest expense Answer: a Diff: M 7A-. Vogril Company issued 20-year, zero coupon bonds with an expected yield to maturity of 9 percent. The bonds have a par value of $1,000 and were sold for $178.43 each. What is the expected interest expense on these bonds for Year 8?
c. $198.89 d. $257.52 e. $254.84 Callable zero coupon bond Answer: c Diff: M 7A-. Recycler Battery Corporation (RBC) issued zero coupon bonds 5 years ago at a price of $214.50 per bond. RBC’s zeros had a 20-year original maturity, with a $1,000 par value. The bonds were callable 10 years after the issue date at a price 7 percent over their accrued value on the call date. If the bonds sell for $239.39 in the market today, what annual rate of return should an investor who buys the bonds today expect to earn on them? a. 15.7% b. 12.4% c. 10.0% d. 9.5% e. 8.0% Taxes on zero coupon bond Answer: a Diff: M 7A-. Today is and you just purchased a 7-year, zero coupon bond with a face value of $1,000 and a yield to maturity of 6 percent. Your tax rate is 30 percent. How much in taxes will you have to pay on the bond the first year that you hold it? a. $ 11.97 b. $211.49 c. $ 12.69 d. $ 39.90 e. $199.52 Taxes on zero coupon bond Answer: e Diff: M N 7A-. A zero coupon bond with a face value of $1,000 matures in 15 years. The bond has a yield to maturity of 7 percent. If an investor buys the bond at the beginning of the year, how much money in taxes will the investor have to pay on the zero coupon bond the first year. Assume that the investor has a 25 percent marginal tax rate. a. $5.25 b. $5.44 c. $5.99 d. $6.25 e. $6.34 Accrued value and interest expense Answer: a Diff: M 7A-. Vogril Company issued 20-year, zero coupon bonds with an expected yield to maturity of 9 percent. The bonds have a par value of $1,000 and were sold for $178.43 each. What is the expected interest expense on these bonds for Year 8?
FIN2601-chapter07_1.docx