E10-4 Computing Issue Prices of Bonds Sold at Par, at a Discount, and at a Premi

Question

E10-4 Computing Issue Prices of Bonds Sold at Par, at a Discount, and at a Premium LO10-2, 10-4, 10-5 James Corporation is planning to issue bonds with a face value of S500,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of S1, FVA of S1, 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): 4 percent b. Case B: Market interest rate (annual): 6 percent. ?? c. Case C: Market interest rate (annual): 8.5 percent. ce $416,910

Explanation / Answer

a Amount PV factor Present value of Cash flows Semi-annual interest 15000 16.35143 245271 Principal 500000 0.67297 336485 Issue price 581756 b Issue price = $500000 c Amount PV factor Present value of Cash flows Semi-annual interest 15000 13.29437 199416 Principal 500000 0.43499 217495 Issue price 416911

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