Question

Garcia Company issues 12.00%, 15-year bonds with a par value of $200,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10.00%, which implies a selling price of 115 1/4.

Confirm that the bonds’ selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round your other final answers to nearest whole dollar amount.)

Answer 1

Par value of Bonds			200000
Stated rate of interest			12%
Market rate of interest			10%
Cash interest Semi-annual			12000
($ 200,000 *12%*6/12)
Period of bonds			15 years (30 semi-annual periods)
Annuity at 5% for 30 periods			15.372
Present value factors at 5% for period-30			0.2314
Present value of interest			184464
Present value of maturity			46280
Total Issue price			230744
Number of bonds			2000
Issue price per bond			115.372
Hence, Issue price is approx equal