Company issues 10 million of bonds at par (7% rate) and calls them one year later at 104. Then company issues new noncallable bonds with 9 years to maturity (6% rate). What is total gain/loss? Ans: $400,000 loss I’ve got I/Y=11% from the 1st bond, but couldn’t derive the answer. Any suggestions? Thx.
I don’t think you need to calculate anything very complicated for this one. It is just asking for the financial statement gain/loss. Because the company issued 10 mln bonds at par, then bought them back a year later at $4 over par, they suffered an accounting statement loss. To calculate: 10,000,000 bonds/ $100 par = 100,000 bonds Bought back at a loss of $4/ bond = $400,000 loss
I see. Thank you.