b) Calculate the total amount of interest on interest earned five years from now if $100,000 isdeposited into a bank account today that earns 5% interest per year.c) ABC Corporation issued at par $100 million semi-annual coupon-paying bonds on January1, 2010. The bond's YTM at issuance was 8% (APR). The bond matures on January 1,2020.i)Compute the market value of this bond on January 1, 2011 if it was priced to producean effective semi-annual yield to maturity of 6% on that date.ii) Assume the bond is sold on January 1, 2011. Calculate the current yield and 1-year capital gains yield (CGY1-year).iii) Can the 1-year total yield be determined by the sum of current yield and capital gainsyield? Explain your answer.

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Calculate the total amount of interest on interest earned five years from now if $100,000 is deposited into a bank account today that earns 5% interest per year.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 16E

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Question

b) Calculate the total amount of interest on interest earned five years from now if $100,000 is
deposited into a bank account today that earns 5% interest per year.
c) ABC Corporation issued at par $100 million semi-annual coupon-paying bonds on January
1, 2010. The bond's YTM at issuance was 8% (APR). The bond matures on January 1,
2020.
i)
Compute the market value of this bond on January 1, 2011 if it was priced to produce
an effective semi-annual yield to maturity of 6% on that date.
ii) Assume the bond is sold on January 1, 2011. Calculate the current yield and 1-
year capital gains yield (CGY1-year).
iii) Can the 1-year total yield be determined by the sum of current yield and capital gains
yield? Explain your answer.

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