Megafloat Corporation |
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Beginner |
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Available.
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$9.00
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On January 1, 1998, Megafloat Corporation sold 100,000 bonds with the following characteristics:
- Face value, $1,000 each
- Coupon rate of 13%
- payment schedule -- January 1 and July 1
- maturity date -- January 1, 2006
The bonds sold to yield an effective interest rate of 12%.
Assignment
- What was the total amount received for the bonds?
- Was the total interest expense related to this bond on Megafloat's 1998 income statement?
- Disregard your answers to Questions 1 and 2. Assume that the market rate was not 12% and the issue sold at a discount. CBS television financial commentator Flint Buckmeister interpreted the result as follows:
“It is evident that the Street doesn't have much confidence in Megafloat. Their bonds wouldn't sell without a discount.”
- Is Flint right? If so, explain what he is talking about. If not, give the correct explanation.
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