Question

Seaside issues a bond that has a stated interest rate of 7%, face amount of $40,000, and is due in 8 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond? (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.)

Multiple Choice

• $65,276.
• $37,669.
• $61,356.
• $40,000.

Answer 1

		Bond Valuation
		Face Value	40000
		Coupon Rate	0.07
		Discounting Rate	0.08
		Redemption Value	40000
		Years To Manurity	8
		Coupon Payment Duration	Semi-Annually
	Computation Of Bond Price
	a	Semi-annual Interest Amount	$             1,400.00
		($40000*7%/2)
	b	PV Annuity Factor for (16 Years,4%)	11.6523
	c	Present Value Of Annual Interest (a*b)	$           16,313.21
	d	Redemption Value	$           40,000.00
	e	PV Factor Of (16 Years,4%)	0.53391
	g	Present Value Of Redemption Amount (d*e)	$           21,356.33
	f	Price Of The Bond (c+g)	$           37,669.54
	Correct Option: SECOND