Reference no: EM132385671
Question
White & Decker Corporation's 2019 financial statements included the following information in the long-term debt disclosure note:
($ in millions)Zero-coupon subordinated debentures, due 2033: 2019
$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.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
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. (Round your final answer to 2 decimal places.)
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