Problem 1) Perpetual Bonds ABC will be issuing a 4% P20,000,000-face value bonds

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Problem 1) Perpetual Bonds
ABC will be issuing a 4% P20,000,000-face value bonds. The underwriter will be charging 2% of face value as its fee. ABC is taxed at 20%. How much is the effective cost of the bonds?

 

Problem 2: Straight Bonds
ABC Corporation plans to issue an 8%, 15-year, P5,000,000 face value bonds. It will incur P300,000 as underwriting fee. What is the cost of the bond based on the following methods?
       A. Interpolation method using the range 5% to 10%. 
       B. Interpolation method using the range 8% to 10%. 
       C. Interpolation method using the range 8% to 9%.
       D. Yield-to-maturity formula.
       E. Trial and error method (closest percent, 5 decimal places).

 

Problem 3: Straight Bonds, Semiannual
ABC Corporation plans to issue pieces of 12%, 10-year, P1,000 face value bonds that pays semiannually. It will be sold at 104 but the underwriter will charge 2% on issue price. What is the cost of the bond based on the following methods?
       A. Interpolation method using multiples of 1% (guess annual rates of whole percentage but halve this for semiannual rates).
       B. Yield-to-maturity formula.

 

Problem 4: Preference Shares, Definite Life
The entity received P7,580,000 cash from the issuance of its 9%, 3-year P8,000,000 par value preference shares. How much is the cost of the preference shares using the following methods?
       A. Interpolation method using multiplies of 1%.
       B. Yield-to-maturity formula.

 

Problem 5: Preference Shares, Definite Life with Liquidating Value
The entity received P7,580,000 cash from the issuance of its 9%, 3-year P8,000,000 par value preference shares. Additionally assume that these shares have a liquidating value of P8,200,000.  How much is the cost of the preference shares using the following methods?
       A. Interpolation method using multiplies of 1%. 
       B. Yield-to-maturity formula.