LaTanya Corporation is planning to issue $101,000, nine-year, 8 percent bonds. I
ID: 2499834 • Letter: L
Question
LaTanya Corporation is planning to issue $101,000, nine-year, 8 percent bonds. Interest is payable each December 31. All of the bonds will be sold on January 1, 2014. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
Case A: Market (yield) rate, 8 percent.
Case B: Market (yield) rate, 6 percent.
Case C: Market (yield) rate, 10 percent.
LaTanya Corporation is planning to issue $101,000, nine-year, 8 percent bonds. Interest is payable each December 31. All of the bonds will be sold on January 1, 2014. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
Explanation / Answer
Let the face value of the bond be 100
Interest on the bond= 8% i.e 100*8% or 8
Price of the bond @ 8% yield
= Interest * PVAF ( 8%,9years) + 100*PVF(8%,9years)
= 8*6.2468 + 100*0.5002
= 50+50 i.e 100
Price of the bond @ 6% yield
= Interest * PVAF ( 6%,9years) + 100*PVF(6%,9years)
= 8*6.8016 + 100*0.5918
= i.e 113.60
Price of the bond @ 10% yield
= Interest * PVAF ( 10%,9years) + 100*PVF(10%,9years)
= 8*5.7590+ 100*0.4241
= 46.07+42.41 i.e 88.48
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