James Corporation is planning to issue bonds with a face value of $508,000 and a

Question

James Corporation is planning to issue bonds with a face value of $508,000 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 S1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factorfs) 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 References Worksheet E10-4 Computing Issue Prices of Bonds

Explanation / Answer

Case-1 market rate 4% Par value of Bonds 508000 Stated rate of Interest 6% Market rate of interest 4% Semi annual cash interest(508000*6%*6/12) 15240 Annuity factor for interest 21.416 Present value for maturity 0.5521 Present value of Interest 326379.8 Present value of Maturity amount 280466.8 Issue price 606846.6 Case-2 market interest -6% When the stated and market rate of interest is same, Bonds are isssued at par i.e. $ 508000 Case-3 Market interest-8.50% Par value of Bonds 508000 Stated rate of Interest 6% Market rate of interest 9% Semi annual cash interest(508000*6%*6/12) 15240 Annuity factor for interest 16.779 Present value for maturity 0.2869 Present value of Interest 255712 Present value of Maturity amount 145745.2 Issue price 401457.2

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