On January 1, 2009 Tonks Hair Products Inc. issues $500,000 of 10 year, 7.5% bonds. The...

 

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On January 1, 2009 Tonks Hair Products Inc. issues $500,000 of 10 year, 7.5% bonds. The bonds pay interest semiannually on July 1st and January 1st. The bonds have a call provision which allows Tonks to repurchase them at a price of 105 any time after the first year. The market yield for the bonds at the date of issue is 7%. Tonks pays $8,000 in issuance costs and has a June 30th year end. Tonks calls the bonds on 11/1/10, four months after the July 2010 payment. 1. At what premium or discount does this issue sell? On January 1, 2009 Tonks Hair Products Inc. issues $500,000 of 10 year, 7.5% bonds. The bonds pay interest semiannually on July 1st and January 1st. The bonds have a call provision which allows Tonks to repurchase them at a price of 105 any time after the first year. The market yield for the bonds at the date of issue is 7%. Tonks pays $8,000 in issuance costs and has a June 30th year end. Tonks calls the bonds on 11/1/10, four months after the July 2010 payment. 1. At what premium or discount does this issue sell?

Answer rating: 100% (QA)

1 22581332 Premium Explanation Effective yield rate Market yield rate ... View the full answer