GMAT Corporation is planning to issue bonds with a face value of $252,000 and a

Question

GMAT Corporation is planning to issue bonds with a face value of $252,000 and a coupon rate of 5 percent. The bonds mature in 7 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Determine the issuance price of the bonds assuming an annual market rate of interest of 7.5 percent. (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.)

issue price = ?

Explanation / Answer

The formuale to be used is the PVA(i,n) and PV(i,n)

i=7.5%/2(since semiannual) and n=7*2=14

coupon paymnet=252000*(5%/2)=6300

present value of bonds=6300*PVA(7.5%/2,14)+252000*PVA(7.5%/2,14)

=(6300*10.74)+(252000*0.6)

=218170

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