Question

3-a. If the market rate is 8%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Round Market interest rate" to 1 decimal place. Enter your answers in dollars not in millions.) Bond Characteristics Amount 25,700,000 Face amount $ Interest payment Market interest rate Periods to maturity Issue price

Answer 1

	CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY
	Step 1 : Calculation of Semi Annual Coupon Payments
	Par value of the bond issued is   =			$2,57,00,000
	Annual Coupon %			7.00%
	Annual Coupon Amount			$17,99,000
	Semi Annual Coupon Amount			$8,99,500
	Step 2: Calculate number of years to Maturity
	Number of years to maturity = 10 years
	Interest is paid semi annyally so total period = 10 Years * 2 = 20 Periods
	Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
	Market rate of interest or Yield to Maturity or Required Return = 8%
	Bonds interest is paid semi annualy means so discounting factor = 8 % /2= 4 %
	PVF = 1 / Discount rate = 1/ 1.04
	Result of above will again divide by 1.04 , repeat this lat period
	Period	Interest	Amount (In Million)	PVF @ 4%	PresentValue
	1	Interest	$8,99,500	0.9615	$8,64,903.85
	2	Interest	$8,99,500	0.9246	$8,31,638.31
	3	Interest	$8,99,500	0.8890	$7,99,652.22
	4	Interest	$8,99,500	0.8548	$7,68,896.37
	5	Interest	$8,99,500	0.8219	$7,39,323.43
	6	Interest	$8,99,500	0.7903	$7,10,887.92
	7	Interest	$8,99,500	0.7599	$6,83,546.07
	8	Interest	$8,99,500	0.7307	$6,57,255.84
	9	Interest	$8,99,500	0.7026	$6,31,976.77
	10	Interest	$8,99,500	0.6756	$6,07,669.97
	11	Interest	$8,99,500	0.6496	$5,84,298.05
	12	Interest	$8,99,500	0.6246	$5,61,825.05
	13	Interest	$8,99,500	0.6006	$5,40,216.39
	14	Interest	$8,99,500	0.5775	$5,19,438.84
	15	Interest	$8,99,500	0.5553	$4,99,460.42
	16	Interest	$8,99,500	0.5339	$4,80,250.40
	17	Interest	$8,99,500	0.5134	$4,61,779.23
	18	Interest	$8,99,500	0.4936	$4,44,018.49
	19	Interest	$8,99,500	0.4746	$4,26,940.86
	20	Interest	$8,99,500	0.4564	$4,10,520.06
	20	Bond Principal Value	$2,57,00,000	0.4564	$1,17,29,144.52
		Total			$2,39,53,643.06
		Current Bonds Price =			$2,39,53,643.06
	SIMULTANEOUSLY WE CAN SOLVE WITH BELOW MEHTOD
	OR		Cumulative value of $ 1 @ 4% in 10 Years
	Interest	$8,99,500.00	13.5903	1,22,24,498.55
	Par Value at 20th Period	$2,57,00,000	0.4564	1,17,29,144.52
	Current Bonds Price			2,39,53,643.06
	ANSWER =
	Face Amount	$2,57,00,000
	Interest Payment	$8,99,500
	Market Interest Rate	8%
	Periods to maturity	10 years
	Issue Price	2,39,53,643