White & Decker Corporation's 2018 Financial Statements Included the Following $\begin{array}{c}\text { (\$ in millions) } \\\frac{2018}{\$ 275}\end{array}$

question 92

Essay

White & Decker Corporation's 2018 financial statements included the following information in the long-term debt disclosure note:
$\begin{array}{c}\text { (\$ in millions) } \\\frac{2018}{\$ 275}\end{array}$
Zero-coupon subordinated debentures, due 2033: $275
The disclosure note stated the debenture bonds were issued late in 2013 and have a maturity value of $500 million. The maturity value indicates the amount that White & Decker will pay bondholders in 2033. 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 an annual basis.
Required:
1. Determine the effective interest rate on the bonds.
2. Determine the issue price in late 2013 of a single, $1,000 maturity-value bond.

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Definitions:

Alarm Stage

The initial reaction of the body's stress response system, involving activation of the sympathetic nervous system to prepare to face or flee from a threat.

Sympathetic Nervous System

A part of the autonomic nervous system that activates the body's responses under stress, triggering the fight-or-flight response.

Parasympathetic Nervous System

The part of the autonomic nervous system responsible for conservation of energy and relaxation of the body, often referred to as the "rest and digest" system.

Stage of Adaptation

The phase in which individuals or groups adjust to new conditions or environments.