Question

Seaside issues a bond that has a stated interest rate of 12%, face amount of $50,000, and is due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 14%. What is the issue price of the bond? (EV of $1, PV of $1, EVA of $1, PVA of $1, EVAD of S1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Ο Ο Ο $75,418. Ο $82,618. Ο

Answer 1

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Correct option is: D. $46,489
Workings:
Cash flow	Period	Amount	P.V Factor @7%	Present Value
Maturity value	10	$       50,000	0.50835	$            25,418
Interest (annuity)	1 to 10	$          3,000	7.02358	$            21,071
Issue price of bonds				$            46,488
Working notes:-
Interest is payable semiannually i.e twice a year
Semiannual coupon rate	=	Coupon rate / 2
	=	12% / 2
	=	6%
Number of semiannual periods	=	Number of years X 2
	=	5 years X 2
	=	10 years
Interest payment	=	$50000 X 6%
	=	$          3,000
Semiannual market interest rate	=	14% / 2
	=	7.0%