Question

Akers Company sold bonds on July 1, 20X1, with a face value of $100,000. These bonds are due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June 30 and December 31. These bonds were sold to yield 8%. Use the following links to the present value tables to calculate answers. (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided. Round your final answers to the nearest whole dollar amount. Do not round intermediate calculations.) Required: How much did these bonds sell for on July 1, 20X1?

Answer 1

Answer:

Bond Price = $86409.67366 rounded off to $86409.67

Explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = 100000 * 0.06 * 6/12  = $3000

Total periods (n) = 10 * 2 = 20  

r or YTM = 0.08 * 6/12 = 0.04 or 4%

The formula to calculate the price of the bonds today is attached.

Bond Price = 3000 * [( 1 - (1+0.04)^-20) / 0.04]  + 100000 / (1+0.04)^20

Bond Price = $86409.67366 rounded off to $86409.67