Answer:
the internal rate of return is 12%
Explanation:
The computation of the internal rate of return is as follows;
Year Cash flows
0 -$178,848
1 $36,000
2 $36,000
3 $36,000
4 $36,000
5 $36,000
6 $36,000
7 $36,000
8 $36,000
Now apply the IRR formula
= IRR()
After applying it, the internal rate of return is 12%
On January 1, 2010, Water Wonderland issues $20 million of 8% bonds, due in ten years, with interest payable semi-annually on June 30 and December 31 each year. 1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium
Answer:
the bonds will trade at a Premium
Explanation:
When the Yield to Maturity (YTM) is less than the Coupon Rate, the price of the Bond will be greater than the par value and we say that the Bond is trading at a Premium.
The Yield to Maturity of 7% is less than the Coupon rate 8% hence the bond will trade at a Premium.
Calculation of the Price of Bond
Alternatively we can calculate the price of the Bond a see for ourselves as follows :
FV = $20,000,000
PMT = ($20,000,000 × 8%) ÷ 2 = $8,00,000
P/YR = 2
YTM = 7 %
N = 10 × 2 = 20
PV = ?
Using a Financial calculator to input the values as above we can calculate the Price of Bond (PV) as $21,421,240.