Q1) Carter Manufacturing Company has outstanding the issue of 9 percent sinking-fund debentures that needs annual sinking-fund payment of $4 million per year. This requirement may be met either by: presenting to trustee on or before specified date each year cash in amount of $4 million; or else instructing trustee to enter financial markets and purchase for Carters account sufficient bonds to equal face value of $4 million, which it will then cancel and retire.
Same number of bonds will be retired in either case. In first case, bonds will be obtianed and retired at face value. In second, bonds to be retired will be bought from market at market price.
Each bond has face value of $1000, pays interest once per year, and has five years left to maturity. Currently, bonds are trading in market with a yield to maturity of 12.0 percent. Compute the market price of the bonds be?
Enough bonds should be retired to satisfy $4,000,000 sinking fund requirement-either by having trustee acquires the 4,000 bonds to be retired at their $1,000 face value (par value) or else purchase 4,000 bonds to be retired in the ce. Which of two methods must Carter use to meet current sinking-fund payment due shortly?