please answer parts 1,2,3 and
explain how you got to answer
Correct Answer:
Requirement 1:
Bond Characteristics |
Amount |
Face amount |
$ 24,800,000 |
Interest payment |
6% |
Market interest rate |
5% |
Periods to maturity |
40 |
Issue price |
$ 27,912,744 |
The bond will issue at Premium
Working:
Annually |
Formula Applied |
|
Face Value of Bond |
$ 24,800,000 |
|
Interest Annually @ 6 % (6/200 * 24,800,000) |
$ 744,000 |
(Face Value of Bonds * Coupon rate ) |
Semi-Annual Effective interest Rate ® ( 5%/2) |
0.025 |
5% |
Time Period (n) 20 years |
40.00 |
20 |
Present Value of Face Value of Bond |
$ 9,236,279.46771 |
Face Value/(1+r%)^2n |
Present Value of Interest payment |
$ 18,676,464.64 |
Interest * ((1-(1+r)^-n)/r) |
Issue Price Of Bond |
$ 27,912,744 |
PV of Face value of bond + PV of Interest Paid Annually |
Premium or (Discount) |
$ 3,112,744 |
Issue Price - Face Value of Bonds |
Requirement 2:
Bond Characteristics |
Amount |
Face amount |
$ 24,800,000 |
Interest payment |
6% |
Market interest rate |
6% |
Periods to maturity |
40.00 |
Issue price |
$ 24,800,000 |
The bond will issue at par
Working:
Annually |
Formula Applied |
|
Face Value of Bond |
$ 24,800,000 |
|
Interest Annually @ 6 % (6/200 * 24,800,000) |
$ 744,000 |
(Face Value of Bonds * Coupon rate ) |
Semi-Annual Effective interest Rate ® ( 6%/2) |
0.030 |
6% |
Time Period (n) 20 years |
40.00 |
20 |
Present Value of Face Value of Bond |
$ 7,602,609.65119 |
Face Value/(1+r%)^2n |
Present Value of Interest payment |
$ 17,197,390.35 |
Interest * ((1-(1+r)^-n)/r) |
Issue Price Of Bond |
$ 24,800,000 |
PV of Face value of bond + PV of Interest Paid Annually |
Premium or (Discount) |
$ - |
Issue Price - Face Value of Bonds |
Requirement 3:
Bond Characteristics |
Amount |
Face amount |
$ 24,800,000 |
Interest payment |
6% |
Market interest rate |
7% |
Periods to maturity |
40.00 |
Issue price |
$ 22,151,971 |
The bond will issue at Discount
Working:
Annually |
Formula Applied |
|
Face Value of Bond |
$ 24,800,000 |
|
Interest Annually @ 6 % (6/200 * 24,800,000) |
$ 744,000 |
(Face Value of Bonds * Coupon rate ) |
Semi-Annual Effective interest Rate ® ( 7%/2) |
0.035 |
7% |
Time Period (n) 20 years |
40.00 |
20 |
Present Value of Face Value of Bond |
$ 6,263,797.21123 |
Face Value/(1+r%)^2n |
Present Value of Interest payment |
$ 15,888,173.82 |
Interest * ((1-(1+r)^-n)/r) |
Issue Price Of Bond |
$ 22,151,971 |
PV of Face value of bond + PV of Interest Paid Annually |
Premium or (Discount) |
$ (2,648,029) |
Issue Price - Face Value of Bonds |
End of answer.
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