Tony's Pizzeria Plans to Issue Bonds with a Par Value

question 58

Multiple Choice

Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity.These bonds will pay $45 interest every 6 months.Current market conditions are such that the bonds will be sold to net $937.79.What is the YTM of the issue as a broker would quote it to an investor?

• A) 11%
• B) 10%
• C) 9%
• D) 8%
• E) 7%

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Definitions:

Straight-Line Depreciation

A process of dividing the expense of a substantial asset into identical annual portions over its useful duration.

Net Income

The net income of a firm after deducting all expenses and taxes from its gross revenue.

Cash Payback Period

A rephrased term for Payback Period, this is the duration required for an investment to generate cash flows that cover its initial expense.

Present Value Factor

A calculation used in determining the present value of a sum of money to be received in the future by considering a specified rate of interest.