Question

Scottie Adams Bird Supplies issued 10% bonds, dated January 1, with a face amount of $150,000 on January 1, 2021. The bonds mature in 2031 (10 years). For bonds of similar risk and maturity the market yield is 8%. Interest is paid semiannually on June 30 and December 31. What is the price of the bonds at January 1, 2021? Some relevant and irrelevant present value factors:

* PV of annuity due of $1: n = 20; i = 4% is 14.13394
* PV of ordinary annuity of $1: n = 20; i = 4% is 13.59033
**PV of $1: n = 20; i = 4% is 0.45639

Multiple Choice

• $170,386.

• $180,088.

• $272,313.

• $117,042.

Answer 1

The Correct Option is $170,386 Answer Explanations Calculation of price of the bonds at January 1, 2021 Term 10 yrs x 2 20 terms Rate of Interest Semiannually 10 % /2=5% Market Yield Semiannually 8% / 2 4% Interest $150,000 x 5% = $7,500 =$150,000 Maturity Value Price of Bond = $7,500 x 13.59033 $150,000 x 0.45639 =$101,927+$68,459 =$170,386