Six years ago the Templeton Company issued 25-year bonds with a 15% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why should or should not the investor be happy that Templeton called them? I. Investors should not be happy. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates. II. Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. III. Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. IV. Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. -Select- v *

Six years ago the Templeton Company issued 25-year bonds with a 15% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why should or should not the investor be happy that Templeton called them? I. Investors should not be happy. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates. II. Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. III. Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. IV. Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. -Select- v *

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EA: Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the...

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Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
Seven years ago the Templeton Company issued 27-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 7.5% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. ____ % Why should or should not the investor be happy that Templeton called them? Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment…
Six years ago the Templeton Company issued 19-year bonds with a 13% annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why should or should not the investor be happy that Templeton called them? 1. Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. II. Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. III. Investors should not be happy. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest…
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Seven years ago the Ford Company issued 28-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 6% call premium, with 5 years of call protection. Today Ford called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.
Ten years ago the Templeton Company issued 17-year bonds with a 10% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. 11 % Why should or should not the investor be happy that Templeton called them? I. Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. II. Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. III. Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment…
Seven years ago the Templeton Company issued 17-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 6% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.
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11 years ago the Singleton Company issued 30-year bonds with a 12.5% annual coupon rate at their $1,000 par value. The bonds had a 7.5% call premium, with 3 years of call protection. Today Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. 13.77% 12.50% 7.50% 12.85%