Matt Enterprises issued $200,000 of ten percent, five-year bonds with interest payable semiannually. Determine the issue price i
f the bonds are priced to yield (a) ten percent, (b) six percent, and (c) 12 percent.
1 answer:
Answer:
$200,000 ; $234,120.81 ; and $185,279.83
Explanation:
For computing the issue price we need to applied the future value which is shown in the attachment below:
a. Given that,
Future value = $200,000
Rate of interest = 10% ÷ 2 = 5%
NPER = 5 years × 2 = 10 years
PMT = $200,000 × 10% ÷ 2 = $10,000
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, applying the formula the issued price is $200,000
b. Given that,
Future value = $200,000
Rate of interest = 6% ÷ 2 = 3%
NPER = 5 years × 2 = 10 years
PMT = $200,000 × 10% ÷ 2 = $10,000
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, applying the formula the issued price is $234,120.81
c. Given that,
Future value = $200,000
Rate of interest = 12% ÷ 2 = 6%
NPER = 5 years × 2 = 10 years
PMT = $200,000 × 10% ÷ 2 = $10,000
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, applying the formula the issued price is $185,279.83
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