Answer to Question #112573 in Accounting for Germary Dunn

Question

3. Band Ltd issued debentures with a face value of N$1 000, which mature in exactly five years from today’s date. The latest interest payment has just been received. The interest is payable at 10% per annum on the face value of the debentures, on a quarterly basis. The market yield for the debentures is quoted as 12% per annum.

The value of a Band Ltd debenture is:

a) N$939
b) N$993
c) N$1 076
d) N$1 000

Answer 1

We solve by the formula:

$P=\frac{100}{0.12}({1-\frac{1}{(1+0.03)^{20}}})+\frac{1000}{(1+0.12)^5}$

$P=\frac{100}{0.12}({1-\frac{1}{(1+0.03)^{20}}})+\frac{1000}{(1+0.12)^5}$

P=371.94+567.43=939.37

a)answer