Question

Mountain Excursions issues bonds due in 12 years with a stated interest rate of 12% and a face value of $120,000. Interest payments are made semi-annually. The market rate for this type of bond is 13%. Using a financial calculator or Excel, calculate the issue price of the bonds.

A) 70,292

B) 112,806

C) 127,891

D) 120,000

Answer 1

Table values are based on:
Face Amount	$120,000
Interest Payment	$120,000*12%*6/12 =$7,200
Market Interest rate per period	6.50%
Cash Flow	Table Value(PV of 6.5% for 24 period)	Amount	Present Value
PV of Interest	11.99074	$7,200	$86,333
PV of Principal	0.2206	$1,20,000	$26,472
PV of Bonds Payable(Issue Price)			$1,12,805
So Option B is the answer