LaTanya Corporation is planning to issue bonds with a face value of $106,500 and

Question

LaTanya Corporation is planning to issue bonds with a face value of $106,500 and a coupon rate of 7 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): 7 percent.

b. Case B: Market interest rate (annual): 5 percent.

c. Case C: Market interest rate (annual): 8 percent.

Explanation / Answer

Solution : Case -A

Issue price = Face value x (PVF@7%, 7yrs) +

Annual interest x (APVF@7%, 7yrs)

= $106,500 x 0.62275 + $7,455 x 5.38929

= $106,500

Case -B

Issue price = Face value x (PVF@5%, 7yrs) +

Annual interest x (APVF@5%, 7yrs)

= $106,500 x 0.71068 + $7,455 x 5.78637

= $118,825

Case -B

Issue price = Face value x (PVF@8%, 7yrs) +

Annual interest x (APVF@8%, 7yrs)

= $106,500 x 0.58349 + $7,455 x 5.20637

= $100,955

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.