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**

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