Question

Thompson Corporation is planning to issue $130,000, five-year, 6 percent bonds. Interest is payable semi-annually each June 30 and December 31. All of the bonds will be sold on July 1, 2017; they mature on June 30, 2022.

Required:Compute the issue (sale) price on July 1, 2017, if the yield is: (Round time value factor to 4 decimal places. Round the final answers to the nearest dollar amount.)

a. 6%

b. 5%

c.7%

Answer 1

	Calculation of sales price of bonds
			If yield = 6%		If yield = 5%		If yield = 7%
	Period	Cash Inflow	Discounting factor @ 3%	Discounted Cash Inflow	Discounting factor @ 2.5%	Discounted Cash Inflow	Discounting factor @ 3.5%	Discounted Cash Inflow
		(Face Value * Coupon rate * 6/12)	(6%/2)	.@ 3%	(5%/2)	.@ 2.5%	(7%/2)	.@ 3.5%
		(A)	(B)	(A) * (B)	(C )	(A) * (C )	(D)	(A) * (D)
Interest payment	12-31-17	$                                                      3,900	0.9709	$                            3,786.41	0.9756	$                             3,804.88	0.9662	$                             3,768.12
Interest payment	06-30-18	$                                                      3,900	0.9426	$                            3,676.12	0.9518	$                             3,712.08	0.9335	$                             3,640.69
Interest payment	12-31-18	$                                                      3,900	0.9151	$                            3,569.05	0.9286	$                             3,621.54	0.9019	$                             3,517.58
Interest payment	06-30-19	$                                                      3,900	0.8885	$                            3,465.10	0.9060	$                             3,533.21	0.8714	$                             3,398.62
Interest payment	12-31-19	$                                                      3,900	0.8626	$                            3,364.17	0.8839	$                             3,447.03	0.8420	$                             3,283.70
Interest payment	06-30-20	$                                                      3,900	0.8375	$                            3,266.19	0.8623	$                             3,362.96	0.8135	$                             3,172.65
Interest payment	12-31-20	$                                                      3,900	0.8131	$                            3,171.06	0.8413	$                             3,280.93	0.7860	$                             3,065.36
Interest payment	06-30-21	$                                                      3,900	0.7894	$                            3,078.70	0.8207	$                             3,200.91	0.7594	$                             2,961.71
Interest payment	12-31-21	$                                                      3,900	0.7664	$                            2,989.03	0.8007	$                             3,122.84	0.7337	$                             2,861.55
Interest & Repayment	06-30-22	$                                                 133,900	0.7441	$                         99,634.18	0.7812	$                        104,602.47	0.7089	$                          94,924.23
			Total	$                             130,000	Total	$                              135,689	Total	$                              124,594
	Answer	If Yield rate is	Issue(sale) price on July 1, 2017
		6%	$                               130,000
		5%	$                               135,689
		7%	$                               124,594