Question

A company issued 6%, 10-year bonds with a face amount of $75 million. The market yield for bonds of similar risk and maturity is 7%. Interest is paid semiannually. At what price did the bonds sell? (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. Enter your answers in whole dollars. Round final answers to the nearest whole dollar.) Table values are based on: 20 3.5% Present Value Cash Flow Amount 2,250,000 $ Interest Principal 75,000,000 Price of bonds

I have a TI-83 calculator. Can you please show me how to use the calculator and the TMV solver (like what do I put for n, i, pv, pmt, and fv??) so I can figure this question out? Thank you

Answer 1

Answer:

n = 10*2 = 20
i = 7%/2 = 3.50%

	Amount	Factor	Present Value
Interest	$2250000	$14.21240	$31,977,900
	75000000*6%/2
Principal	$75000000	0.502566	$37,692,450
Price of bonds			$69,670,349

Working Notes:

present value of an ordinary annuity = C x (1-(1+i)-n)/i
=2,250,000 x (1-(1+0.035)-20)/0.035
=2,250,000 x (1-(1.035)-20)/0.035
=2,250,000 x (1-0.502566)/0.035
=2,250,000 x (0.497434/0.035)
=2,250,000 x 14.2124
=31,977,900

present value of principal = C x (1/(1+i)n)
=75,000,000 x (1/(1+0.035)20)
=75,000,000 x (1/(1.035)20)
=75,000,000 x (1/1.98979)
=75,000,000 x 0.502566
=37,692,450