Question

Bond Pricing Walter Company issues $750,000 of 12% bonds that pay interest semiannually and mature in...

Bond Pricing

Walter Company issues $750,000 of 12% bonds that pay interest semiannually and mature in 10 years. Compute the bonds’ issue price assuming that the bonds’ market interest rate is:

  1. 10% per year compounded semiannually
  2.    14% per year compounded semiannually
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Homework Answers

Answer #1

Solution a:

Computation of bond price
Table values are based on:
n= 20
i= 5.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.37689 $750,000 $282,667
Interest (Annuity) 12.46221 $45,000 $560,799
Bond Issue Price $843,467

Solution b:

Computation of bond price
Table values are based on:
n= 20
i= 7.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.25842 $750,000 $193,814
Interest (Annuity) 10.59401 $45,000 $476,731
Bond Issue Price $670,545
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