Complete the below table to calculate the price of a $1.5 million bond issue und

Question

Complete the below table to calculate the price of a $1.5 million bond issue under each of the following independent assumptions 1)Maturity 15 years, interest paid semiannually, stated rate 10%, effective (market) rate 12% 2) Maturity 5 years, interest paid semiannually, stated rate 12%, effective (market) rate 10% 3) Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 10% 4) Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%

Explanation / Answer

Answer 1 Price of Bond

Interest $ *75000 * 13.765 = 1032375

Principal $ 1500000*0.174 = 261000

Price of Bonds = $ 1293375   

* interest = 1500000*10% = $ 150000, paid semi annually $ 75000

Ordinary annuity $ 1, n=30, i = 6 % = 13.765

Present value $ 1, n=30, I = 6% = 0.174

Answer 2 :

Price of Bond

Interest $ *90000 * 7.722 = 694980

Principal $ 1500000*0.614 = 921000

Price of Bonds = $ 1615980   

* interest = 1500000*12% = $ 180000, paid semi annually $ 90000

Ordinary annuity $ 1, n=10, i = 5 % = 7.722

Present value $ 1, n=10, I = 5% = 0.614

Answer 3 :

Price of Bond

Interest $ *90000 * 12.462 = 1121580

Principal $ 1500000*0.377 = 565500

  Price of Bonds = $ 1687080

* interest = 1500000*12% = $ 180000, paid semi annually $ 90000

Ordinary annuity $ 1, n=20, i = 5 % = 12.462

Present value $ 1, n=20, I = 5% = 0.377

Answer 4 :

Price of Bond

Interest $ *90000 * 11.470 = 1032300

Principal $ 1500000*0.312 = 468000

  Price of Bonds = $ 1500300   

* interest = 1500000*12% = $ 180000, paid semi annually $ 90000

Ordinary annuity $ 1, n=20, i = 6 % = 11.470

Present value $ 1, n=20, I = 6% = 0.312

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