Question

please just google the factor tabes yourselves... thank you

White & Decker Corporation's 2019 financial statements included the following information in the long-term debt disclosure note: Zero-coupon subordinated debentures, due 2033: (5 in millions) 2019 $278 The disclosure note stated the debenture bonds were issued late in 2013 and have a maturity value of $580 million. The maturity value indicates the amount that White & Decker will pay bondholders in 2033. Each individual bond has a maturity value (face amount) of $1,080. Zero-coupon bonds pay no cash interest during the term to maturity. The company is 'accreting" (gradually increasing) the issue price to maturity value using the bonds' effective interest rate computed on an annual basis. (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the effective interest rate on the bonds. 2. Determine the issue price in late 2013 of a single, $1.080 maturity value bond. (For all requirements, round your answers to 2 decimal places.) 1 2 Effective interest rate Issue price

Answer 1

solution 1: 5.38 %

EXPLANATION:

given that = maturity value of bond = $580 million

pay to boundholderin 2033

so no of year (2019 to 2033)= 14 years

solution 1 effective interest rate of the bonds = bonds value on 2019 / bonds value on 2033

= $278 /$580

= .48

by applying formula of present value we calculate effective interest rate

pv = 1/(1+k)ⁿ

here pv = 0.48

n = 14 years

k = effective interest = ?

so pv = 1/(1+k)ⁿ

0.48 = 1/(1+k)¹⁴

(0.48) x (1+k)¹⁴ = 1

((1+k)¹⁴ =1/(0.48)

1+k =( 2.083333)^1/14

k = 0.0538

or k= 5.38%

(note : here student not provide tabel hence we calculated pv by applying above formula)

solution 2 :$ 379.08(approx)

EXPLANATION :

given that

effective interest rate = 5.38 %

years(2013 to 2033) = 20 years

pv = $1080 x(1+.0538)²⁰

⁼ $1080 x0.351= $ 379.08(approx)

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