James Corporation is planning to issue bonds with a face value of $504,000 and a
ID: 2594599 • Letter: J
Question
James Corporation is planning to issue bonds with a face value of $504,000 and a coupon rate of 6 percent. The bonds mature in 7 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 $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.)
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.
Explanation / Answer
A / 1 B C D E 2 Computation of issue(sale) price 3 Particulars Case-A Case-B Case-C 4 Face value of bonds $504,000 $504,000 $504,000 5 Maturity in years 7 7 7 6 Coupon rate per annum 6% 6% 6% 7 Coupon payment frequency(semi-annual) 2 2 2 8 No of coupon payments in the total term 14 14 14 9 Semi-annual coupon amount $15,120 $15,120 $15,120 10 Market interest Rate per annum 4.0% 6.0% 8.5% 11 Bond sale price= ($565,015.49) ($504,000.00) ($438,537.33) 12 formula used =PV(C10/2,C8,C9,C4,0)
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