Question

On January 1, 2018, Shirley Corporation purchased 12% bonds dated January 1, 2018, with a face amount of $19 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.

Answer 1

Table values are based on
n=	20
i=	8%
Cash flow	Amount	Present value
Interest	1140000	11192691
Principal	19000000	4076450
Price of bonds		15269141
Workings:
Interest	1140000	=19000000*12%/2
Present value:
Interest	11192691	=1140000*9.81815
Principal	4076450	=19000000*0.21455
PV factor:
Interest	9.81815	=(1-(1.08)^-20)/0.08
Principal	0.21455	=1/1.08^20