Question

4. Assume that Acropolis Company on January 1, 2014, issues $100,000 of 9% bonds, due in five years, with interest payable semiannually on every Jun 30 and Dec 31. What are the selling prices of this bond, if the market interest rates are the following? (You may use the "Handout: Present Value Tables" for calculation) a. 9% $ b. 10% $__ C. 8% $ d. For (b), were the bonds issued at a premium or discount?

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	10
i=	4.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.64393	$100,000.00	$64,393
Interest (Annuity)	7.91272	$4,500.00	$35,607
Price of bonds			$100,000

Solution b:

Computation of bond price
Table values are based on:
n=	10
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.61391	$100,000.00	$61,391
Interest (Annuity)	7.72173	$4,500.00	$34,748
Price of bonds			$96,139

Solution c:

Computation of bond price
Table values are based on:
n=	10
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.67556	$100,000.00	$67,556
Interest (Annuity)	8.11090	$4,500.00	$36,499
Price of bonds			$104,055

Solution d:

For (b) bonds were issued at discount.