PLEASE USE five point of decimal while calculating E10-4 Computing Issue Prices

Question

PLEASE USE five point of decimal while calculating

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 $506,500 and a coupon rate of 6 percent. The bonds mature in 15 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 $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): 4 percent. e price b. Case B: Market interest rate (annual): 6 percent e price c. Case C: Market interest rate (annual): 8.5 percent. ssue price

Explanation / Answer

   Issue price of bonds = Present value of lumpsum + present value of interest payments Present value of lumpsum = Cash flow / (1+r)n present value of interest payments = cash flow * (( 1 - (1+r)-n / r )) a) Face value = 506500 coupon rate = 6% Semi anually intrest payment = 6/2 = 3% Market rate of intrest = 4% Market rate = 6% Market rate = 8.5% Semi anually = 4/2 = 2% Semi annually= 3% Semi annually 4.25% maturity period = 15 years maturity period = 15 years maturity period = 15 years n = 15*2 = 30years n = 15*2 = 30years n = 15*2 = 30years interest = 506500*3% = 15195 15195 interest = 506500*3% = 15195 interest = 506500*3% = 15195 PV of lumpsum = 506500/(1+0.02)30 = 506500*0.55 PV of lumpsum = 506500/(1+0.03)30 = 506500*0.412 PV of lumpsum = 506500/(1+0.0425)30 = 506500*0.286 278575 208678 144859 Pv of interest payments = 22.5*15195 Pv of interest payments = 19.6*15195 Pv of interest payments = 16.78*15195 341888 297822 254972.1 Issue price 620463 Issue price 506500 Issue price 399831.1

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.