GMAC Corporation is planning to issue bonds with a face value of $250,000 and a
ID: 2590664 • Letter: G
Question
GMAC Corporation is planning to issue bonds with a face value of $250,000 and a coupon rate of 6 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. All of the bonds were 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.) Determine the issuance price of the bonds assuming an annual market rate of interest of 8 percent. ssue priceExplanation / Answer
Price of the seminnual interest bond
=[Seminnual interest amount* PVIFA (Market rate / 2 ) , life * 2 ] + [Maturity value * PVIF (Market rate / 2 ) , life * 2 ]
= $7,500 * PVIFA4 % , 10 years + $250,000 * PVIF4 % , 10 years
= $7,500 * 8.1109 + $250,000 * 0.6756 = $60,831.75 + $168,900 = $229,732
Note : The PV & PVA for the question is not paseted here , thus if qustion had used 2 or 3 place decimals than the final answer may slighly change.
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