Question

Issue Price

The following terms relate to independent bond issues:

1. 650 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments
2. 650 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments
3. 870 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments
4. 2,020 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.	$

Answer 1

a.selling price of bond = 924.18

b.selling price of bond=922.78

c.selling price of bond =875.38

d.selling price of bond =1153.72

CALCULATION

FORMULA = C1/(1+r)^t + C2/(1+r)^t + ------ + Cn/(1+r)^t + FV/(1+r)^t

^{C = COUPON}

^{r = stated rate}

^{t = time period}

^{FV = FUTURE VALUE}

a)

SELLING PRICE=80 / (1.1) + 80 / (1.1)² ----- 80 / (1.1)⁵ + 1000 / (1.1)⁵

SELLING PRICE = 72.72 +66.116 +60.105 +54.641 +49.674 +620.92

SELLING PRICE = 924.18

b)

SELLING PRICE=40 / (1.05) + 80 / (1.05)² ----- 80 / (1.05)¹⁰ + 1000 / (1.08)¹⁰

=922.78

c)

SELLING PRICE=40 / (1.05) + 80 / (1.05)² ----- 80 / (1.05)²⁰ + 1000 / (1.08)²⁰

=875.38

d)

SELLING PRICE=60 / (1.05) + 80 / (1.05)² ----- 80 / (1.05)³⁰ + 1000 / (1.08)³⁰

=1153.72