Final answer:
The exact balance of the right-of-use asset is not calculable with the information provided. For bonds, an increase in market interest rates leads to a decrease in the bond's price. The present value calculation of the bond's future cash flows at a higher interest rate shows that the bond would be worth less than its face value.
Step-by-step explanation:
The balance in the right-of-use asset after two years is not provided because the amortization schedule for the lease payments is not given, which is necessary to calculate the reduction in the right-of-use asset. However, to provide an explanation related to the information given in the reference regarding bond pricing:
Regarding the bond example, a. Given the change in interest rates from 6% to 9%, you would expect to pay less than $10,000 for the bond, since it is offering a lower interest rate than the current market rate. The value of the bond has fallen because investors can now obtain a higher interest rate in the market. b. To calculate this, you can find the present value of the bond's future cash flows (the final year's interest payment plus the principal repayment) discounted at the new market interest rate of 9%.
For the bond, with a face value of $10,000 and a 6% annual coupon, you would receive $600 in the final year plus the $10,000 principal. The calculation for the present value is:
- PV of interest payment: $600 / (1 + 0.09) = $550.46
- PV of principal: $10,000 / (1 + 0.09) = $9174.31
- Total PV you would be willing to pay: $550.46 + $9174.31 = $9724.77