Exhibit 16-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 13

Multiple Choice

Exhibit 16-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The following information is given concerning a substitution swap: You currently hold a 25 year, Aa 8% coupon bond priced to yield 10%. As a swap candidate you are considering a 25 year, Aa 8% coupon bond priced to yield 10.50%. Assume a reinvestment rate of 10%, semiannual compounding, and a one-year workout period. $\begin{array}{lcc}&\text { Current Band } & \text { Candidate Band } \\\hline\text { Dollar Investment } & \$ 817.44 & ? \\\text { Coupon } & 80.00 & 80.00 \\\text { on One Coupon } & 2.00 & 2.20 \\\text { Principal Value at Year End } & 819.23 & 782.33 \\\text { Total Accrued } & 901.23 & 864.53 \\\text { Total Gain } & 83.79 & ? \\\text { Gain per Invested Dollar } & ? & ? \\\text { Realized Compound Yield } & ? & ?\end{array}$

-Refer to Exhibit 16-4. The realized compound yield on the current bond is

• A) 6.00%
• B) 7.00%
• C) 8.00%
• D) 10.00%
• E) 12.00%

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Definitions:

Overapplied

A situation in which the allocated manufacturing overhead cost is more than the actual overhead cost incurred.

Overapplied Manufacturing Overhead

Occurs when the amount of overhead applied to products or jobs during a period is greater than the actual overhead costs incurred.

Finished Goods Inventory

The value of a company’s inventory of products that are completed and ready for sale.

Underapplied

In accounting, underapplied refers to when the allocated overhead costs are less than the actual overhead costs incurred.