Question

20- Sand Explorers issues bonds due in 10 years with a stated interest rate of 7% and a face value of $180,000. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Using present value tables, calculate the issue price of the bonds. (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.)

• $146,880.

• $193,390.

• $180,000.

• $224,149.

Answer 1

Price of bond is calculated as present value of coupon amount plus present value of par value
Price of bond	Coupon amount*PVA(I,n) + Par value*PV (I,n)
PVA is present value of annuity and PV is present value factor
Coupon amount	$6,300	180000*7%*(6/12)
Interest rate (i)	3.00%	6%/2
Number of payments (n)	20	10*2
Price of bond	(6,300*14.8775)+(180,000*0.5537)
Price of bond	$193,390
Thus, price of bond is $193,390
To calculate PVA factor in PVA table check for i=3% and n of 20
To calculate PV factor in PV table check for i=3% and n of 20