Question

Kelly Industries issued 7% bonds, dated January 1, with a face value of $150,000 on January 1, 2021. The bonds mature in 2031 /10 years) Interest is paid semiannually on June 30 and December 31. For bonds of similar risk and maturity the market yield is 9%. What was the issue price of the bonds? FV of $1. PV of $1. FVA of $1. PVA of $1. EVAD of $1 and PVAD of 51) (Use appropriate factor(s) from the tables provided.)

Answer 1

	A	B
1	Face value	150000
2	Stated interest rate	7%
3	Semiannual interest paid	5250
4	Number of semiannual periods to maturity	20
5	Semiannual market rate	0.045
6
7	Present value of interest paid	$68,292
8	Present value of face value to be paid at maturity	$62,196
9	Issue price of the bonds	$130,488
10
11	Therefore, the correct answer is $130,488.

Above figures have been calculated in the following manner:

Face value	150000
Stated interest rate	0.07
Semiannual interest paid	=B1*B2*(1/2)
Number of semiannual periods to maturity	=10*2
Semiannual market rate	=9%/2
Present value of interest paid	=PV(B5,B4,-B3,0,0)
Present value of face value to be paid at maturity	=PV(B5,B4,0,-B1,0)
Issue price of the bonds	=B7+B8
Therefore, the correct answer is $130,488.