Question

Ultimate Butter Popcorn issues 5%, 20-year bonds with a face amount of $46,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price will the bonds issue? (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Round "Market interest rate" to 1 decimal place.)

Answer 1

Answer:

$40,683.60

Explanation:

For computing the issue price of the bond we use the present value formula i.e to be shown in the attachment below:

Given that,  

Future value = $46,000

Rate of interest = 6%  ÷ 2 = 3%

NPER = 20 years  × 2 = 40 years

PMT = $46,000 × 5% ÷ 2 = $1,150

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the issue price of the bond is $40,683.60