Issue Price
The following terms relate to independent bond issues:
Use the appropriate present value table:
PV of $1 and PV of Annuity of $1
Required:
Assuming the market rate of interest is 10%, calculate the selling price for each bond issue. If required, round your intermediate calculations and final answers to the nearest dollar.
Reqa. | ||||||
Annual cash interest = 400,000*8% = 32,000 | ||||||
n = 5 | ||||||
I = 10% | ||||||
Cashflows | Amount | PVF | Present value | |||
Annual cash interest | 32,000 | 3.79079 | 121305.3 | |||
Principle outstanding | 4,00,000 | 0.620921 | 248368.4 | |||
Price of the bonds | 369673.7 | |||||
Answer is $ 369,674 | ||||||
Req b. | ||||||
Semi annual cash interest = 400,000*8%*6/12 = 16,000 | ||||||
n= 10 | ||||||
I = 5% | ||||||
Cashflows | Amount | PVF | Present value | |||
Annual cash interest | 16,000 | 7.72173 | 123547.7 | |||
Principle outstanding | 4,00,000 | 0.613913 | 245565.2 | |||
Price of the bonds | 369112.9 | |||||
Answer is $ 369,113 | ||||||
Req c. | ||||||
Semi annual cash interest = 400,000*8%*6/12 = 16,000 | ||||||
n= 20 | ||||||
I = 5% | ||||||
Cashflows | Amount | PVF | Present value | |||
Annual cash interest | 16,000 | 12.46221 | 199395.4 | |||
Principle outstanding | 4,00,000 | 0.376889 | 150755.6 | |||
Price of the bonds | 350151 | |||||
Answer is $ 350,151 | ||||||
Req d. | ||||||
Semi annual cash interest = 400,000*8%*6/12 = 16,000 | ||||||
n = 30 | ||||||
I = 5% | ||||||
Cashflows | Amount | PVF | Present value | |||
Annual cash interest | 16,000 | 15.37245 | 245959.2 | |||
Principle outstanding | 4,00,000 | 0.231377 | 92550.8 | |||
Price of the bonds | 338510 | |||||
Answer is $ 338,510 | ||||||
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