Question

Help Save & Ext Submit Hillside Excursions issues bonds due in 10 years with a stated interest rate of 8% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Using a financial calculator or Excel, calculate the issue price of the bonds.

Answer 1

The issue price of bond is equal to the present value of all coupon payments and the par value

Semi annual market rate = 6%/2 =3%

Number of semi annual periods = 10*2 = 20 periods

Issue price = 200,000*8%*1/2*PVAF(3%, 20 periods) + 200,000*PVF(3%, 20 periods)

= 8000*14.8775 +200,000*0.5537

=$229,760

Hence, the answer is $229,755 approx.