Question

ames Corporation is planning to issue bonds with a face value of $508,000 and a coupon rate of 6 percent. The bonds mature in 15 years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: Compute the issue (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 4 percent. b. Case B: Market interest rate (annual): 6 percent. c. Case C: Market interest rate (annual): 8.5 percent.

Answer 1

Answer:

Explanation:

a. Market rate of interest 4 %

Present value of the bonds = Semiannual coupon x PVIFA 2%,n=30 + Par Value x PVIF 2%, n=30 = $ 508,000 x 6% x 1/2 x 22.3965 + $ 508,000 x 0.5521 = $ 341,322.66 + $ 280,466.80 = $ 621789.46

 Issue Price $ 621,790

b. Market Interest Rate : 6%

Present value of the bonds = $ 508,000 x 6% x 1/2 x 19.6004 + $ 508,000 x 0.4120 = $ 298,710 + $ 209,296 = $ 508,000

 Issue Price $ 508,000

c. Market interest rate : 8.5 %

Present value of the bonds = Semiannual coupon x PVIFA 4.25%, n=30 + Par Value x PVIF 4.25%, n=30 = $ 508,000 x 6% x 1/2 x 16.7790 + $ 508,000 x 0.2869 = $ 255,711.96 + $ 145,745.20 = $ 401,457.16

 Issue Price $ 401,460