Question

Stealth Fitness Center issues 7%, 9-year bonds with a face amount of $300,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually.

At what price will the bonds be issued? Use Table 2 and Table 4.

Table 2

TABLE 2 Present Value of $1 PV = niya n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 1 0.99010 0.98522 0.98039 0.97561 0.97087 0.96618 0.96154 0.95694 0.95238 0.94787 0.94340 0.93458 0.92593 0.91743 0.90909 0.90090 0.89286 2 0.98030 0.97066 0.96117 0.95181 0.94260 0.93351 0.92456 0.91573 0.90703 0.89845 0.89000 0.87344 0.85734 0.84168 0.82645 0.81162 0.79719 3 0.97059 0.95632 0.94232 0.92860 0.91514 0.90194 0.88900 0.87630 0.86384 0.85161 0.83962 0.81630 0.79383 0.77218 0.75131 0.73119 0.71178 4 0.96098 0.94218 0.92385 0.90595 0.88849 0.87144 0.85480 0.83856 0.82270 0.80722 0.79209 0.76290 0.73503 0.70843 0.68301 0.65873 0.63552 5 0.95147 0.92826 0.90573 0.88385 0.86261 0.84197 0.82193 0.80245 0.78353 0.76513 0.74726 0.71299 0.68058 0.64993 0.62092 0.59345 0.56743 0.88496 0.78315 0.69305 0.61332 0.54276 6 0.94205 0.91454 0.88797 0.86230 0.83748 0.81350 0.79031 0.76790 0.74622 0.72525 0.70496 0.66634 0.63017 7 0.93272 0.90103 0.87056 0.84127 0.81309 0.78599 0.75992 0.73483 0.71068 0.68744 0.66506 0.62275 0.58349 8 0.92348 0.88771 0.85349 0.82075 0.78941 0.75941 0.73069 0.70319 0.67684 0.65160 0.62741 0.58201 0.54027 9 0.91434 0.87459 0.83676 0.80073 0.76642 0.73373 0.70259 0.67290 0.64461 0.61763 0.59190 0.54393 0.50025 10 0.90529 0.86167 0.82035 0.78120 0.74409 0.70892 0.67556 0.64393 0.61391 0.58543 0.55839 0.50835 0.46319 0.59627 0.56447 0.54703 0.51316 0.50187 0.46651 0.46043 0.42410 0.42241 0.38554 0.53464 0.48166 0.43393 0.39092 0.35218 0.50663 0.45235 0.40388 0.36061 0.32197 0.48032 0.42506 0.37616 0.33288 0.29459 11 0.89632 0.84893 0.80426 0.76214 0.72242 0.68495 0.64958 0.61620 0.58468 0.55491 0.52679 0.47509 0.42888 12 0.88745 0.83639 0.78849 0.74356 0.70138 0.66178 0.62460 0.58966 0.55684 0.52598 0.49697 0.44401 0.39711 13 0.87866 0.82403 0.77303 0.72542 0.68095 0.63940 0.60057 0.56427 0.53032 0.49856 0.46884 0.41496 0.36770 14 0.86996 0.81185 0.75788 0.70773 0.66112 0.61778 0.57748 0.53997 0.50507 0.47257 0.44230 0.38782 0.34046 15 0.86135 0.79985 0.74301 0.69047 0.64186 0.59689 0.55526 0.51672 0.48102 0.44793 0.41727 0.36245 0.31524 0.38753 0.35553 0.32618 0.29925 0.27454 0.35049 0.31728 0.31863 0.28584 0.28966 0.25751 0.26333 0.23199 0.23939 0.20900 0.28748 0.25668 0.22917 0.20462 0.18270 0.26070 0.23071 0.20416 0.18068 0.15989 16 0.85282 0.78803 0.72845 0.67362 0.62317 0.57671 0.53391 0.49447 0.45811 0.42458 0.39365 0.33873 0.29189 17 0.84438 0.77639 0.71416 0.65720 0.60502 0.55720 0.51337 0.47318 0.43630 0.40245 0.37136 0.31657 0.27027 18 0.83602 0.76491 0.70016 0.64117 0.58739 0.53836 0.49363 0.45280 0.41552 0.38147 0.35034 0.29586 0.25025 19 0.82774 0.75361 0.68643 0.62553 0.57029 0.52016 0.47464 0.43330 0.39573 0.36158 0.33051 0.27651 0.23171 20 0.81954 0.74247 0.67297 0.61027 0.55368 0.50257 0.45639 0.41464 0.37689 0.34273 0.31180 0.25842 0.21455 0.25187 0.21763 0.18829 0.16312 0.23107 0.19784 0.16963 0.14564 0.21199 0.17986 0.15282 0.13004 0.19449 0.16351 0.13768 0.11611 0.17843 0.14864 0.12403 0.10367 0.14150 0.12522 0.11081 0.09806 0.08678 21 0.81143 0.73150 0.65978 0.59539 0.53755 0.48557 0.43883 0.39679 0.35894 22 0.80340 0.72069 0.64684 0.58086 0.52189 0.46915 0.42196 0.37970 0.34185 23 0.79544 0.71004 0.63416 0.56670 0.50669 0.45329 0.40573 0.36335 0.32557 24 0.78757 0.69954 0.62172 0.55288 0.49193 0.43796 0.39012 0.34770 0.31007 25 0.77977 0.68921 0.60953 0.53939 0.47761 0.42315 0.37512 0.33273 0.29530 0.32486 0.29416 0.24151 0.19866 0.30793 0.27751 0.22571 0.18394 0.29187 0.26180 0.21095 0.17032 0.27666 0.24698 0.19715 0.15770 0.26223 0.23300 0.18425 0.14602 0.16370 0.15018 0.13778 0.12640 0.11597 0.13513 0.11174 0.09256 0.12285 0.10067 0.08264 0.11168 0.09069 0.07379 0.10153 0.08170 0.06588 0.09230 0.07361 0.05882 0.07680 0.06796 0.06014 0.05323 0.04710 30 0.74192 0.63976 0.55207 0.47674 0.41199 0.35628 0.30832 0.26700 0.23138 35 0.70591 0.59387 0.50003 0.42137 0.35538 0.29998 0.25342 0.21425 0.18129 40 0.67165 0.55126 0.45289 0.37243 0.30656 0.25257 0.20829 0.17193 0.14205 45 0.63905 0.51171 0.41020 0.32917 0.26444 0.21266 0.17120 0.13796 0.11130 50 0.60804 0.47500 0.37153 0.29094 0.22811 0.17905 0.14071 0.11071 0.08720 0.20064 0.17411 0.13137 0.09938 0.15352 0.13011 0.09366 0.06763 0.11746 0.09722 0.06678 0.04603 0.08988 0.07265 0.04761 0.03133 0.06877 0.05429 0.03395 0.02132 0.07537 0.05731 0.04368 0.03338 0.04899 0.03558 0.02592 0.01894 0.03184 0.02209 0.01538 0.01075 0.02069 0.01372 0.00913 0.00610 0.01345 0.00852 0.00542 0.00346 0.02557 0.01388 0.00753 0.00409 0.00222

Table 4

Answer 1

Bond Valuation Bond Face Value Bond Interest rate 300000 7.0% Semiannual interest300000*7%*6/12 Market Interest Rate ( Yield rate) Bond tenure Interest payments 10500 8.0% Semiannually Table Values are based on 18 4.00% i Table Value Amount Presents Value Cash Flows Par (Maturity )value Interest (annuity) 0.49363 300000 148089 12.65930 10500 132923 Answer: selling Price of the Bond 281012