Question

On January 1, 2018, Shirley Corporation purchased 10% bonds dated January 1, 2018, with a face amount of $13 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. (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.)

Required: Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.)

Answer 1

Answer :

Workings :

Face Value = $13,000,000

Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5%*$13,000,000
Semiannual Coupon = $650,000

Annual Interest Rate = 12%
Semiannual Interest Rate = 6%

Time to Maturity = 10 years
Semiannual Period to Maturity = 20

Calculation of price of bonds :

Price of Bonds = $650,000 * PVIFA(6%, 20) + $13,000,000 * PVIF(6%, 20)

= $650,000 * 11.4699 + $13,000,000 * 0.3118

= $7,455,435 + $4,053,400

= $11,508,835