as 14-5A Computing bond price LO C2 Garcia Company issues 9.00%, 15-year bonds w

Question

as 14-5A Computing bond price LO C2 Garcia Company issues 9.00%, 15-year bonds with a par value of $270,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6.00%, which implies a selling price of 129 l/3. Confirm that the bonds' selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round your other final answers to nearest whole dollar amount.) Par Value x Price 129 1/3 Table Value Selling Price $349,245 Present Value 270,000 Cash Flow $270,000 par (maturity) value $12,150 interest payment Price of Bond Difference due to rounding of table values 79,191.0000 $ 349,245

Explanation / Answer

270000/129.3333

= $ 2087.6294 = $2088

$12,150*30/129.3333

= 3645000/129.3333=2818.2997

680.0757+1161.1022=2021.1779

= $2021

Par Value x Price = Selling Price $ 270000 129 1/3 = 129.3333

270000/129.3333

= $ 2087.6294 = $2088

Cash Flow Table Value Present value $270,000 par (maturity) value $ 270,000/129.3333 =2087.6294 2087.6294/1.0330 = 860.0757 $ 12,150 Interest payment (semi annual @ 4.5%)

$12,150*30/129.3333

= 3645000/129.3333=2818.2997

2818.2997/1.0330 = 1161.1022 Price of Bond 2087.6294+2818.2997 = 4905.9291 = $ 4906

680.0757+1161.1022=2021.1779

= $2021

Difference due to rounding of table values - 2088-2021 = $67

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