Question

A company issued 10%, 10-year bonds with a face amount of $100 million. The market yield for bonds of similar risk and maturity is 8% Interest is paid semiannually. At what price did the bonds sell? (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. Enter your answers in whole dollars.) Table values are based on: Amount Present Value Cash Flow Interest Principal Price of bonds

Answer 1

Answer:

Table values are based on:
n=	20
i=	4%
Cash Flow	Amount	Present Value
Interest	$5,000,000	$67,951,500
Principal	$10,000,000	$45,639,000
Price of bonds		$113,590,500

Calculations:

n = 10 years x 2 interest payments = 20

i = Semi-annual interest of market rate of 8%= 4%

Interest = Face value x Semi-annual interest rate of 10% = $100,000,000 x 5% = $5,000,000

Present value of interest payments	$67,951,500
[5,000,000 x 13.5903 present value annuity factor (4%, 20 years)
Present value of principal	$45,639,000
[100,000,000 x 0.45639 present value factor (4%,20 years)
Price of the bonds	$113,590,500