Question

LaTanya Corporation is planning to issue bonds with a face value of $107,000 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on 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): 6 percent.
b. Case B: Market interest rate (annual): 4 percent.
c. Case C: Market interest rate (annual): 7 percent.

Answer 1

Answer:

A. $107,005

B. $119,842

C. $101,228

Explanation:

Computation for the issue (sale) price on January 1 of this year

a. Case A: Market interest rate (annual): 6 percent

Table value are based on:

n= 7

i= 6%

Cash Flow Table Value Amount Present Value

Par (maturity value) 0.6651 $107,000 $71,166

Interest (annuity) 5.5824 6,420 35,839

($107,000*6%=$6,420)

Issue Price 107,005

Therefore The Issue Price for Case A is $107,005

b. Case B: Market interest rate (annual): 4 percent

Table value are based on:

n= 7

i= 4%

Cash Flow Table Value Amount Present Value

Par (maturity value) 0.7599 107,000 81,309

Interest (annuity) 6.0021 6,420 38,533

Issue Price $119,842

Therefore the Issue Price for Case B is $119,842

c. Case C: Market interest rate (annual): 7 percent.

Table value are based on:

n= 7

i= 7%

Cash Flow Table Value Amount Present Value

Par (maturity value) 0.6227 107,000 66,629

Interest (annuity) 5.3893 6,420 34,599

Issue Price $101,228

Therefore The Issue Price for Case C is $101,228