Question

The following terms relate to independent bond issues:

A: 420 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments

B: 420 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments

C: 840 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments

D: 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.

Answer 1

Answer

A) Selling price of Bond

= {1000 ÷ (1+0.10) ^5} + { 80 x (1 - (1+0.10) ^-5) ÷ 0.10 }
= $ 924.18
= $ 924 ( round off)

B) Selling price of Bond

= {1000 ÷ (1+0.05) ^10} + { 40 x (1 - (1+0.05) ^-10) ÷ 0.05 }
= $ 922.77
= $ 923 ( round off)

C) Selling price of Bond

= {1000 ÷ (1+0.05) ^30} + { 40 x (1 - (1+0.05) ^-30) ÷ 0.05 }
= $ 875.36
= $ 875 ( round off)

D) Selling price of Bond

= {500 ÷ (1+0.05) ^30} + { 30 x (1 - (1+0.05) ^-30) ÷ 0.05 }
= $ 576.86
= $ 577 ( round off)