Question

A company issued 6%, 15-year bonds with a face amount of $67 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Enter your answers in whole dollars. Round final answers to the nearest whole dollar.)

Answer 1

Bond should be sold at the face value .

Explanation

When market interest rate of bond is lower than coupon rate of bond then bond is issued at a premium. This is because company is giving higher rate of interest on bond , this higher rate of interest is increases the price of bond and hence bond is issued at premium.

When market interest rate of bond is higher than coupon rate of bond then bond is issued at Discount. This is because company is not returning more than market rate so to compensate that the sale value of bond is lower than face value.

Bond will be issued at face value if the Market rate and coupon rate is equal.

In the given question Coupon rate of bond is 6% and market rate is also 6%. Market yield is considered to be market rate in this question.

There is no need to calculate present value of interest payments and redemption value at maturity to calculate price of bond.