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James Corporation is planning to issue bonds with a face value of $508,500 and a coupon rate of 6 percent. The bonds mature i
Present Value of $1 Periods 1.0% 2.0% 3.0% 3.75% 4.05 4.25% 0.99010 0.98030 0.97059 0.96098 0.95147 0.94205 0.93272 0.92348 0
Present Value of Annuity of $1 Periods 1.0% 2.0% 3.75% 4.0% 4.25% 7.0% 0.99010 1.97040 2.94099 3.90197 4.85343 5.79548 6.7281
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Answer #1

a. Case A: Market interest rate (annual) 4%

Cash Flow (n=14,i=2%) Present Value
Face value 508500 0.75788 385382
Interest payment ($508500 x 6% x 1/2) 15255 12.10625 184681
Issue price $ 570063

b. Case B: Market interest rate (annual) 6%

Cash Flow (n=14,i=3%) Present Value
Face value 508500 0.66112 336180
Interest payment ($508500 x 6% x 1/2) 15255 11.29607 172322
Issue price $ 508501

c. Case C: Market interest rate (annual) 8.5%

Cash Flow (n=14,i=4.25%) Present Value
Face value 508500 0.55839 283941
Interest payment ($508500 x 6% x 1/2) 15255 10.3909 158513
Issue price $ 442454
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