Question

# Issue Price The following terms relate to independent bond issues: 650 bonds; \$1,000 face value; 8%...

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. \$

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

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