The Pennington Corporation issued a new series of bonds on January 1, 1993. The
ID: 2613834 • Letter: T
Question
The Pennington Corporation issued a new series of bonds on January 1, 1993. The bonds were sold at par ($1,000), had a 12% coupon, a matured in 30 years on December 31, 2022. Coupon payments are made semiannually (on June 30 and December 31)
Assume that you plan to purchase an outstanding Pennington Bond on March 1, 2010, when the going rate of interest given its risk is 15.5%. How large a check must you write to complete the transaction? ( hint: do not forget the accrued interest). Sovle using a financial calculator.
Explanation / Answer
Discount rate is
15.50%
Coupon rate for bond is
12%
Bond face value is
1000
Interest for 6months is
60
Interest accrude upto march1,2000
20
Discount receivable on june 30 is
60
Discount factor for 4 months is
0.95
PV of interest is
57.05
Already accrued is
20
Blance amount is
37.05
Accumalated PV factor for remaining period is
10.90673954
Interest to be received for every 6m is
60
Value of interest on 30th june 2010 is
654.4043725
PV factor for the end of the period is
0.1545
PV value bond redemption is
154.5
Total value as on 30th june 2010 is
808.9043725
PV as on 1st march 2010 is
769.1642211
Present value of bond is
806.22
Date
PV factors as on 30th june 2010
31st dec 2010
0.928074246
30th june 2011
0.861321806
31st dec 2011
0.799370586
30th june 2012
0.741875253
31st dec 2012
0.688515316
30th june 2013
0.638993333
31st dec 2013
0.593033256
30th june 2014
0.550378892
31st dec 2014
0.510792475
30th june 2015
0.474053341
31st dec 2015
0.439956697
30th june 2016
0.40831248
31st dec 2016
0.378944297
30th june 2017
0.351688442
31st dec 2017
0.326392986
30th june 2018
0.302916924
31st dec 2018
0.281129396
30th june 2019
0.260908952
31st dec 2019
0.242142879
30th june 2020
0.22472657
31st dec 2020
0.208562942
30th june 2021
0.193561895
31st dec 2021
0.17963981
30th june 2022
0.166719081
31st dec 2022
0.154727686
Discount rate is
15.50%
Coupon rate for bond is
12%
Bond face value is
1000
Interest for 6months is
60
Interest accrude upto march1,2000
20
Discount receivable on june 30 is
60
Discount factor for 4 months is
0.95
PV of interest is
57.05
Already accrued is
20
Blance amount is
37.05
Accumalated PV factor for remaining period is
10.90673954
Interest to be received for every 6m is
60
Value of interest on 30th june 2010 is
654.4043725
PV factor for the end of the period is
0.1545
PV value bond redemption is
154.5
Total value as on 30th june 2010 is
808.9043725
PV as on 1st march 2010 is
769.1642211
Present value of bond is
806.22
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