Question

Chinook Inc. has available for issue a $3,220,000 bond due in eight years. Interest at the rate of 8.00% is to be paid semiannually. Calculate the issue price if the market interest rate is:

	Market Interest Rate	Issue Price
a)	7.5
b)	8.00
c)	8.75

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	16
i=	3.75%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.55487	$3,220,000.00	$1,786,678
Interest (Annuity)	11.87017	$128,800.00	$1,528,877
Price of bonds			$3,315,555

Solution b:

Computation of bond price
Table values are based on:
n=	16
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.53391	$3,220,000.00	$1,719,184
Interest (Annuity)	11.65230	$128,800.00	$1,500,816
Price of bonds			$3,220,000

Solution c:

Computation of bond price
Table values are based on:
n=	20
i=	4.375%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.5040	$3,220,000.00	$1,622,976
Interest (Annuity)	11.3365	$128,800.00	$1,460,136
Price of bonds			$3,083,112