Question

The following terms relate to independent bond issues: 570 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments 570 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments 880 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments 2,150 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments 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. Situation Selling Price of the Bond Issue

a. $

b. $

c. $

d. $

Answer 1

Assuming the market rate of interest is 10%, calculate the selling price for each bond issue.

a.570 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments 570 bonds

Part 1 - Table values are based on :
n = 5
I = 10%
Cash flow	Table value	Amount	Present Value
Par value	0.6209	570000	353913
Interest	3.7908	45600	172860.48	( 570000 * 8 % )
Issue Price			526773.48

b.$1,000 face value; 8% stated rate; 5 years; semiannual interest payments 880 bonds

Part 2 - Table values are based on :
n = 10
I = 5%
Cash flow	Table value	Amount	Present Value
Par value	0.6139	880000	540232
Interest	7.7217	35200	271803.84	( 880000 * 4 % )
Issue Price			812035.84

c.$1,000 face value; 8% stated rate; 10 years; semiannual interest payments 2,150 bonds

Part 3 - Table values are based on :
n = 20
I = 5%
Cash flow	Table value	Amount	Present Value
Par value	0.3769	2150000	810335
Interest	12.4622	86000	1071749.2	( 2150000 * 4 % )
Issue Price			1882084.2

d.$500 face value; 12% stated rate; 15 years; semiannual interest payments

Part 4 - Table values are based on :
n = 30
I = 5%
Cash flow	Table value	Amount	Present Value
Par value	0.2314	500	115.7
Interest	15.3725	30	461.175	( 500 * 6 % )
Issue Price			576.875