Question

On 1 January 20X2, Lucky Company purchased $7,000,000 of Fire Corp. 6% bonds, classified as a FVTPL. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 7% on the date of purchase. The bonds mature on 30 December 2011. At the end of 20X2, the bonds had a fair value of $6,600,000. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Calculate the price paid by Lucky. (Round time value factor to 5 decimal places. Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) Price paid

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer The price of the bond paid = (semi annual interest payment* ((1-(1+i)^-n)/i)) + (facevalue/(1+i)n) = ((7000000*6%/2)*((1-(1.035)^-20)/.035))+(7000000/(1.035)^20) = (210000*14.2124) + (7000000*.50257) = $ 6502594 Thus the price paid by lucky = $ 6502594 For any help please comment in the comment box Thank You