(A)
(1)
face amount = $39,500,000
(2)
Coupon rate = 8%/2 = 4% semiannually
Annual interest payment = $39,500,000 x 4% = $1,580,000
(3)
periods to maturity = 15 years
and 15 x 2 = 30 semi years
(4)
Market interest rate = 7%/2 = 3.5% semiannually
Time period = 15 x 2 = 30
Therefore,
PVF(3.5%, 30) = 0.35628
PVAF(3.5%, 30) = 18.39205
(5)
Issue price of bond = present value of principal value on bond + present value of interest on bond
= ($39,500,000 x 0.35628) + ($1,580,000 x 18.39205)
= $14,073,060 + $29,059,439
= $43,132,499
(B)
the bond will issue at a premium
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