Question

# Issue Price The following terms relate to independent bond issues: 570 bonds; \$1,000 face value; 8%...

Issue Price

The following terms relate to independent bond issues:

1. 570 bonds; \$1,000 face value; 8% stated rate; 5 years; annual interest payments
2. 570 bonds; \$1,000 face value; 8% stated rate; 5 years; semiannual interest payments
3. 860 bonds; \$1,000 face value; 8% stated rate; 10 years; semiannual interest payments
4. 1,990 bonds; \$500 face value; 12% stated rate; 15 years; semiannual interest payments

Use the appropriate present value table:

PV of \$1 and PV of Annuity of \$1

Required:

Assuming the market rate of interest is 10%, calculate the selling price for each bond issue. If required, round your intermediate calculations and final answers to the nearest dollar.

 Situation Selling Price of the Bond Issue a. \$ b. \$ c. \$ d. \$

Solution:

Issue price of bond =(Face value * PVF of Market rate * Years of maturity) +( Interest Paid * PVAF of Market rate * Year of Maturity). Here market rate of interest is 10%

a. \$1,000*0.6209 + \$1,000*8%*3.7908 = \$924.16 Selling price for bond issue = \$924.16*570 = \$526,771

Here interest payments are semiannual so period will get double , and interest rate and market rate will reduced to half

i.e market rate here is 5%

b.\$1,000*0.6139 + \$1,000*4%*7.7217 = \$922.77 Selling price for bond issue = \$922.77*570 = \$525,979

c.\$1,000*0.3769 + \$1,000*4%*12.4622 = \$875.39 Selling price for bond issue = \$875.39*860 = \$752,835

d.\$500*0.2314 + \$500*6%*15.3725 = \$576.88 Selling price for bond issue = \$576.88*1,990 = \$1,147,991

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