When it comes to investments, a government is no different than a business organization. Governments...
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Accounting
When it comes to investments, a government is no different than a business organization. Governments typically finance its project(s) via bonds. Once a bond is issued, it might be prudent for a government to recall the bond depending on the interest rate and potential benefit.
In a bond refunding, if NYS issues a 10 years bond previously for $1,000 face value, semi-interest rate of 8% percent annually. Assuming rates fell to 6%:
Present Value @ 3% of a single sum of $1 = 0.553368 and Annuity of $1 = 14.87747.
Which statement holds true?
| It is difficult to calculate the impact, given the limited information. | ||
| Since the new rate is lower, it will yield lower period bond interest and therefore result in gains. | ||
| Costs of old issue must be more than the new issue. | ||
| The cost of the new issue is > $1,148.78 |
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