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18- On January 1, 2021, Anne Teak Furniture issued $100,000 of 8% bonds, dated January 1....

18- On January 1, 2021, Anne Teak Furniture issued $100,000 of 8% bonds, dated January 1. Interest is payable semiannually on June 30 and December 31. The bonds mature in 12 years. The annual market rate for bonds of similar risk and maturity is 10%. What was the issue price of the bonds? (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.)

  • $91,995.

  • $86,202.

  • $87,995.

  • $70,019.

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Answer #1

Solution:

Computation of bond price
Table values are based on:
n= 24
i= 5.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.31007 $100,000.00 $31,007
Interest (Annuity) 13.79864 $4,000.00 $55,195
Price of bonds $86,202

Hence 2nd option is correct.

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