Author Question: Petty Productions Inc. recently issued 30-year 1,000 face value, 12 annual coupon bonds. The market ... (Read 111 times)

mckennatimberlake · **on:** Jul 10, 2018

Petty Productions Inc. recently issued 30-year 1,000 face value, 12 annual coupon bonds. The market discount rate for this bond is only 7. What is the current price of this bond?

A) 387.59
B) 597.24
C) 1,000.00
D) 1,620.45

Question 2

Howton Mining expects to have credit sales of 8,000,000 this year. First National Bank is offering Howton
Mining a lock-box system for 1,200 per month. Howton Mining estimates that the new lock-box system will
reduce float by 4.5 days.

What rate of return must Howton Mining earn on its marketable securities to make it
worthwhile for the company to institute this lock-box system? Use a 365-day year.

meow1234 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D)
Bond Price = PMT +
= 120 + = 1,620.45.
MODE = END
INPUT 30 7 0 -120 -1,000
KEY N I/Y PV PMT FV
CPT 1,620.45

Answer to Question 2

Rate of return earned on marketable securities
Income = 8,000,000
365 4. 5 days rate = 1,200 12
Rate of Return = 14,400
(8,000,000/365 4. 5) =
14,400
98,630 = .146