You are watching: Which of the following bonds has the greatest price risk?
A 10-year, $1,000 confront value, zero coupon bond.
Zero coupon binding are marketed at a deep discount, and do no pay coupons, just pay the complete par value price at maturity.
Zero coupon bonds are riskier 보다 other types of bonds since they are subject come interest taxes risk: this means that also if the link does no pay coupons, the IRS still computes one imputed attention that the bond would have actually received, and also charges an income tax over it.
If the bondholder the a zero coupon selling the bond before maturity, the hazard of having actually paid more in both revenue taxes ~ above imputed intersest, add to the early stage price that the bond itself, 보다 the get from the sale, is really high.
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A Treasury bond has an 8% yearly coupon and also a 7.5% productivity to maturity. I beg your pardon of the adhering to statements is CORRECT?
a) The bond sells in ~ a price below par.
It way that the investor demands to pay a price lower than the par value the acquire a treasury bond, the coupons room fixed and also the return that the primary it"s the same as issued, if the yield to maturity (7,5%, discount rate in the existing value formula) it"s less than the price of coupons (8%), climate the price need to be reduced than the par value to fulfill the result.
When the bonds space traded in ~ par worth it way that the coupon rate it"s the very same of the productivity to maturity.
And fi the bonds room traded at a price over par climate the price the the bond are greater than the authorize price.
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During August, Boxer firm sells $362,000 in goods that has a one year warranty. Experience reflects that warranty expenses
Warranty cost 14,700 debit
Warranty liability 14,700 credit
The idea is comparable to allowance for doubful accounts.
We need complement the chance of uncollectible found to the duration on as soon as the revenue ocour.
Here we are corresponding the warrant cost, which can be whenever in the future.
With the moment on i m sorry the sold is done, recognizing one expense.
See more: Q Sellers Set The Demand For A Product, While The Buyers Set The Supply.
Expected vouch liability: 5% the sales
362,000 x 5% = $18,100
Current balance (3,400)
The returned goods had a cost of 8,800 this are accounted versus warrant liability. Therefore the balance reduced to 3,400
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