Ultimate Butter Popcorn issues 796, 10-year bonds with a face amount of $44,000.

Question

Ultimate Butter Popcorn issues 796, 10-year bonds with a face amount of $44,000. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually. At what price will the bonds issue? (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Round"Market interest rate" to 1 decimal place.) Bond Characteristics Amount $44,000 Face amount Interest payment Market interest rate Periods to maturity Issue price

Explanation / Answer

Solution:

Face amount = $44,000

Interest payment = $44,000 * 7% * 6/12 = $1,540 per semiannual period

Market interest rate = 7% p.a.

Periods to maturity = 10 years, 20 semiannual period

As coupon rate and market rate of interest are the same, therefore issue price of bond is equal to its face value i.e. $44,000

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