Question

On March 1, 2014, Squeeks Corporation issued a $1 million face-value bond with 11% face interest rate and a maturity of fifteen years. The semi- annual interest payments are made on March 1 and September 1. The bond was issued at such a price as to yield 9.6%.

a. What was the issue price of the bond?

Answer 1

Solution :-

Semiannual Yield = 9.6% / 2 = 4.8%

Time to maturity = 15 Years

Semiannual Periods = 15 * 2 = 30

Semiannual Coupon Rate = $1,000 * 11% * 6 / 12 = $55

Now Quoted Price / Issue Price  = $55 * PVAF ( 4.8% , 30 ) + $1,000 * PVF ( 4.8% , 30 )

= ( $55 * 15.729 ) + ( $1,000 * 0.245 )

= $865.107 + $244.997

= $1,110.105

Now the Issue Price of 1 million face Value bond = $1,000,000 * $1,110.105 / $1,000 = $1,110,105

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