Question

Determining Bond Selling Price Calculate the bond selling price for the three separate scenarios that follow. a. 33M Corp. authorized and issued $200,000, 6%, 20-year bonds payable on January 1, 2020. Calculate the selling price of the bonds if the bonds pay cash interest semiannually on July 1 and January 1, and the market rate of interest on similar bonds is 896. b. 33M Corp. authorized and issued $500,000, 796, 10-year bonds payable on January 1, 2020. Calculate the selling price of the bonds if the bonds pay cash interest semiannually on July 1 and January 1, and the market rate of interest on similar bonds is 6%. c. 33M Corp. issued $150,000, 5%, 10-year bonds payable on March 31, 2020. The bonds were authorized on January 1, 2020. Calculate the selling price of the bonds (including interest) if the bonds pay cash interest annually on January 1, beginning January 1, 2021, and the market rate of interest on similar bonds is 69. a. $ 960,204 x b. $ Check

Answer 1

NOTE: BOND PRICE ROUNDED OFF AT TWO DECIMAL POINT. STUDENT SHOULD FOLLOW QUESTION'S ROUNDING OFF REQUIREMENT

a)
	Bond Valuation
	Face Value	200000
	Coupon Rate	0.06
	Discounting Rate	0.08
	Redemption Value	200000
	Years To Manurity	20
	Coupon Payment Duration	Semi-Annually
Computation Of Bond Price
a	Semi-annual Interest Amount	$          6,000.00
	($200000*6%/2)
b	PV Annuity Factor for (40 Years,4%)	19.7928
c	Present Value Of Annual Interest (a*b)	$    1,18,756.64
d	Redemption Value	$    2,00,000.00
e	PV Factor Of (40 Years,4%)	0.20829
g	Present Value Of Redemption Amount (d*e)	$        41,657.81
f	Intrinsic Value ( Price ) Of The Bond (c+g)	$    1,60,414.45
b)
	Face Value	500000
	Coupon Rate	0.07
	Discounting Rate	0.06
	Redemption Value	500000
	Years To Manurity	10
	Coupon Payment Duration	Semi-Annually
Computation Of Bond Price
a	Semi-annual Interest Amount	$        17,500.00
	($500000*7%/2)
b	PV Annuity Factor for (20 Years,3%)	14.8775
c	Present Value Of Annual Interest (a*b)	$    2,60,355.81
d	Redemption Value	$    5,00,000.00
e	PV Factor Of (20 Years,3%)	0.55368
g	Present Value Of Redemption Amount (d*e)	$    2,76,837.88
f	Intrinsic Value ( Price ) Of The Bond (c+g)	$    5,37,193.69

c)
	Bond Valuation
	Face Value	$          1,50,000
	Coupon Rate	5%
	Discount Rate	6%
	Redemption Value	$          1,50,000
	Years To Manurity	10
	Coupon Payment Duration	Annually
Computation Of Bond Price
a	Annual Interest Amount	$          7,500.00
	($150000*5%)
b	PV Annuity Factor for (10 Years,6%)	7.36009
c	Present Value Of Annual Interest (a*b)	$        55,200.65
d	Redemption Value	$    1,50,000.00
e	PV Factor Of (10 Years,6%)	0.55839
g	Present Value Of Redemption Amount (d*e)	$        83,759.22
f	Price as on 01-jan -2020 (c+g)	$    1,38,959.87
Price On 01-01-2021
	=$138959.87*(1.0125)
	=$140696.87
Interest for 3 month = $150000*5%*3/12
	=$1875
Price Of Bond Inclueding Interest = $140696.87+1875
	=$142571.87