LaTanya Corporation is planning to issue bonds with a face value of $105,000 and

Question

LaTanya Corporation is planning to issue bonds with a face value of $105,000 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

where I = 7% t = 7 years a) PV of principal * $1 = amount 105,000 * 0.62275 65388.75 PV of interest * ordinary annuity 7350 * 5.38929 = 39611.28 issue price 105000 answer b) Case b where i= 5% t= 7 years PV of principal * $1 = amount 105,000 * 0.71068 74621 PV of interest * ordinary annuity 7350 * 5.78637 = 42530 issue price 117151 answer c) Case C where i= 8% t= 7 years PV of principal * $1 = amount 105,000 * 0.58349 61266 PV of interest * ordinary annuity 7350 * 5.20637 = 38267 issue price 99533 answer

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