Answer - Case - (A) -
Calculation of Market Value of Bonds Issue -
Particulars | Formula used | Calculations | Amount ($) | ||
I. | Present Value of Bonds Interest Payments |
p = Interest payments = [($1000000*8%)/2] = $40000. r = Adjusted discount rate = (6% / 2) = 0.03 n = Number of periods = (10 * 2) = 20 |
$40000 [1-(1+0.03)-20 / 0.03] | 595099 | |
II. | Present Value of Face Value of Bonds |
FV = Face Value of bond = $1000000. r = Adjusted discount rate = (6% / 2) = 0.03 n = Number of periods = (10 * 2) = 20 |
$1000000 / (1+0.03)20 | 553676 | |
Market Value of Bonds Issue | I + II | 1148775 | |||
.
Answer - Case - (B) -
Calculation of Market Value of Bonds Issue -
Particulars | Formula used | Calculations | Amount ($) | ||
I. | Present Value of Bonds Interest Payments |
p = Interest payments = [($1000000*8%)/2] = $40000. r = Adjusted discount rate = (8% / 2) = 0.04 n = Number of periods = (10 * 2) = 20 |
$40000 [1-(1+0.04)-20 / 0.04] | 543613 | |
II. | Present Value of Face Value of Bonds |
FV = Face Value of bond = $1000000. r = Adjusted discount rate = (6% / 2) = 0.03 n = Number of periods = (10 * 2) = 20 |
$1000000 / (1+0.04)20 | 456387 | |
Market Value of Bonds Issue | I + II | 1000000 | |||
.
Answer - Case - (C) -
Calculation of Market Value of Bonds Issue -
Particulars | Formula used | Calculations | Amount ($) | ||
I. | Present Value of Bonds Interest Payments |
p = Interest payments = [($1000000*8%)/2] = $40000. r = Adjusted discount rate = (10% / 2) = 0.05 n = Number of periods = (10 * 2) = 20 |
$40000 [1-(1+0.05)-20 / 0.05] | 498488 | |
II. | Present Value of Face Value of Bonds |
FV = Face Value of bond = $1000000. r = Adjusted discount rate = (10% / 2) = 0.05 n = Number of periods = (10 * 2) = 20 |
$1000000 / (1+0.05)20 | 376889 | |
Market Value of Bonds Issue | I + II | 875377 | |||
Problem 5 What is the market value of each of the following bond issues? $1,000,000 face...
Problem 5 What is the market value of each of the following bond issues? $1,000,000 face value; 8% stated interest rate; 10-year life; interest paid semi-annually; 6% effective interest rate. $1,000,000 face value; 8% stated interest rate; 10-year life; interest paid semi-annually; 8% effective interest rate. $1,000,000 face value; 8% stated interest rate; 10-year life; interest paid semi-annually; 10% effective interest rate.
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On January 1, 2018, White, Inc. issues $1,000,000 total face value, 10-yr bonds with an annual stated interest rate of 5%. Interest is paid semi-annually on June 30th and December 31st. The company received $559,260 upon issuance. The chart below may help, but will not be graded. (Solutions included below; Need Steps to get to the answers) Period Cash Paid Interest Expense Amortization of Discount/Premium Unamortized Premium/Discount Bonds Carrying Value (Book Value) Issuance Don’t use Don’t use Don’t use 6/30/2018...