Question

# On January 1, 2018, Shirley Corporation purchased 10% bonds dated January 1, 2018, with a face...

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.)

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