Question 2 (of 17) Save & Exlt Submit GMAT Corporation is planning to issue bond

Question

Question 2 (of 17) Save & Exlt Submit GMAT Corporation is planning to issue bonds with a face value of $259,500 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.)

Explanation / Answer

Face value of Bond             2,59,500 Interest Semi annually 2.5% 6,487.50 r (semi annually) 3.75% Issue price=6487.5*(PVIF,3.75%%,14)+259500*(PVIF,3.75%,14) =6487.5*10.73962+259500*.597264 Issue price= 224,663 Working Note: 3.75% Inflow Disc. Fact Dis.Cash flow Year             6,487.50 0.963855                 6,253 1             6,487.50 0.929017                 6,027 2             6,487.50 0.895438                 5,809 3             6,487.50 0.863073                 5,599 4             6,487.50 0.831878                 5,397 5             6,487.50 0.80181                 5,202 6             6,487.50 0.772829                 5,014 7             6,487.50 0.744895                 4,833 8             6,487.50 0.717971                 4,658 9             6,487.50 0.69202                 4,489 10             6,487.50 0.667008                 4,327 11             6,487.50 0.642899                 4,171 12             6,487.50 0.619662                 4,020 13       2,65,987.50 0.597264           1,58,865 14 Present Value 10.73962           2,24,663

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