Issue Price The following terms relate to independent bond issues: 670 bonds; $1

Question

Issue Price

The following terms relate to independent bond issues:

670 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments

670 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments

750 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments

1,840 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments

Use the appropriate present value table: PV of $1 and PV of Annuity of $1 Required:

Assuming the market rate of interest is 10%, calculate the selling price for each bond issue. If required, round your intermediate calculations and final answers to the nearest dollar. Situation Selling Price of the Bond Issue

a. $

b. $

c. $

d. $

Explanation / Answer

(a) $619,204.00 Value of the bonds (670 x 1,000) A 670000 Rate of interest B 8% Term of the bond (years) C 5 Interest payment D Annually Amount of interest E 53600 Market rate of interest F 10% PV factor for $1 after five years @10% G 0.620921 PV factor for an annuity of $1 received for ten periods H 3.7908 Present value of interest ( E * H) I 203186.90 Present value of the bond value (A * G) J 416017.30 Price of the bond (I + J) 619204.20 (b) $580,690.00 Value of the bonds (670 x 1,000) A 670000 Rate of interest B 8% Term of the bond (years) C 5 Interest payment D Semiannual Amount of interest E 26800 Market rate of interest F 10% PV factor for $1 after five years @10% G 0.6209 PV factor for an annuity of $1 received for five periods H 6.1445 Present value of interest ( E * H) I 164673 Present value of the bond value (A * G) J 416017 Price of the bond (I + J) 580690 (c) $544,565.00 Value of the bonds (670 x 1,000) A 750000 Rate of interest B 8% Term of the bond (years) C 10 Interest payment D Semiannual Amount of interest E 30000 Market rate of interest F 10% PV factor for $1 after ten years @10% G 0.3855 PV factor for an annuity of $1 received for twenty periods H 8.5136 Present value of interest ( E * H) I 255408 Present value of the bond value (A * G) J 289157 Price of the bond (I + J) 544565 (d) $799,347.00 Value of the bonds (670 x 1,000) A 920000 Rate of interest B 12% Term of the bond (years) C 15 Interest payment D Semiannual Amount of interest E 55200 Market rate of interest F 10% PV factor for $1 after fiften years @10% G 0.3855 PV factor for an annuity of $1 received for thirty periods H 8.0552 Present value of interest ( E * H) I 444647 Present value of the bond value (A * G) J 354700 Price of the bond (I + J) 799347

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