Enviro Company issues 8%, 10-year bonds with a par value of $290,000 and semiann

ID: 2550191 • Letter: E

Question

Enviro Company issues 8%, 10-year bonds with a par value of $290,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 ½.

Confirm that the bonds’ selling price is approximately correct. Use the present value tables B.1 and B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations.)

Par Value - Selling Price x Price 87 1/2 Table Value Cash Flow $290,000 par (maturity) value $11,600 interest payment Price of Bond Present Value due to rounding of table values 0

Explanation / Answer

Par Value X

Price =

Selling Price

$ 290000

87 1/2

$ 253750

Cash Flow

Table Value

Present Value

$ 290000 (Maturity Value)

0.376889

$ 109297

$ 11600 Interest Payment

12.46221

$ 144562

Price of Bond

$ 253859

Difference due to rounding of table values

($109)