Question

Problem 7.15 Marshall Company is issuing eight-year bonds with a coupon rate of 6.50 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.31 percent. What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.) Bond price If company management wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.) bonds Number of bonds

Answer 1

Answer to Problem 7.15:

Par Value = $1,000

Annual Coupon Rate = 6.50%
Semiannual Coupon Rate = 3.25%
Semiannual Coupon = 3.25% * $1,000
Semiannual Coupon = $32.50

Time to Maturity = 8 years
Semiannual Period = 16

Annual Interest Rate = 9.31%
Semiannual Interest Rate = 4.655%

Price of Bond = $32.50 * PVIFA(4.655%, 16) + $1,000 * PVIF(4.655%, 16)
Price of Bond = $32.50 * (1 - (1/1.04655)^16) / 0.04655 + $1,000 / 1.04655^16
Price of Bond = $32.50 * 11.1089 + $1,000 * 0.4829
Price of Bond = $843.94

Number of Bonds Issued = Amount to be Raised / Price of Bond
Number of Bonds Issued = $1,250,000 / $843.94
Number of Bonds Issued = 1,481.14 or 1,481

Answer to Problem 7.17:

Par Value = $1,000

Annual Coupon Rate = 7.98%
Semiannual Coupon Rate = 3.99%
Semiannual Coupon = 3.99% * $1,000
Semiannual Coupon = $39.90

Time to Maturity = 7 years
Semiannual Period = 14

Annual Interest Rate = 11.38%
Semiannual Interest Rate = 5.69%

Price of Bond = $39.90 * PVIFA(5.69%, 14) + $1,000 * PVIF(5.69%, 14)
Price of Bond = $39.90 * (1 - (1/1.0569)^14) / 0.0569 + $1,000 / 1.0569^14
Price of Bond = $39.90 * 9.4760 + $1,000 * 0.4608
Price of Bond = $838.89

Nanotech will pay $838.89