Question

On January 1, 2018, Shirley Corporation purchased 12% bonds dated January 1, 2018, with a face amount of $24 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 16%. 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

Period	Cash flows	Discount factor @8%	Present value
0		1	0
1	1440000	0.925925926	1333333
2	1440000	0.85733882	1234568
3	1440000	0.793832241	1143118
4	1440000	0.735029853	1058443
5	1440000	0.680583197	980039.8
6	1440000	0.630169627	907444.3
7	1440000	0.583490395	840226.2
8	1440000	0.540268885	777987.2
9	1440000	0.500248967	720358.5
10	1440000	0.463193488	666998.6
11	1440000	0.428882859	617591.3
12	1440000	0.397113759	571843.8
13	1440000	0.367697925	529485
14	1440000	0.340461041	490263.9
15	1440000	0.315241705	453948.1
16	1440000	0.291890468	420322.3
17	1440000	0.270268951	389187.3
18	1440000	0.250249029	360358.6
19	1440000	0.231712064	333665.4
20	1440000	0.214548207	308949.4
20	24000000	0.214548207	5149157
			19287289

Interest ( semi annual) = 24000000*12%/2=1440000

Therefore price of the bond is 19287289