Question

Johnson & Johnson is one of the world's largest manufacturers of health care products. The company's 2009 financial statements included the following information in the long-term debt disclosure note:

The disclosure note stated that the debenture bonds were issued early in 2000 and have a maturity value of $272.5 million. The maturity value indicates the amount that Johnson & Johnson will pay bondholders in 2020. Each individual bond has a maturity value (face amount) of $1,000. Zero-coupon bonds pay no cash interest during the term to maturity. The company is “accreting” (gradually increasing) the issue price to maturity value using the bonds' effective interest rate computed on a semiannual basis.

Required:
1. Determine the effective interest rate on the bonds.
2. Determine the issue price in early 2000 of a single, $1,000 maturity-value bond.



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  • CreatedJune 24, 2013
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