Question

Bushmans Concrete issues $750,000 of 8% bonds that pay interest semiannually and mature in 10 years. Compute the bonds’ issue price assuming that the bonds’ market interest rate is:

a. 10% per year compounded annually

b. 7% per year compounded semiannually

c. Calculate the amount of premium/discount when the market interest is 7% per year compounded semiannually

Answer 1

a). To find the bond's price, we need to put the following values in the financial calculator:

INPUT	10*2=20	10/2=5		(8%/2)*750,000=30,000	750,000
TVM	n	i/y	pv	pmt	fv
OUTPUT			-282,741.88

So, the Bond's Price is $282,741.88

b). To find the bond's price, we need to put the following values in the financial calculator:

INPUT	10*2=20	7/2=3.5		(8%/2)*750,000=30,000	750,000
TVM	n	i/y	pv	pmt	fv
OUTPUT			-803,296.51

So, the Bond's Price is $803,296.51

c). Premium = Bond's Issue Price - Face Value = $803,296.51 - $750,000 = $53,296.51