A)A 10-year, 8 percent bond issue; the market interest rate is 12 percent
B)A 10-year, 12 percent bond issue; the market interest rate is 8 percent
C)A 5-year, 12 percent bond issue; the market interest rate is 8 percent
D)A 5-year, 8 percent bond issue; the market interest rate is 12 percent
Based on the information available in the question, we can calculate the Issue price of the bond as follows:-
A.)
Table values based on | |||
n= | 40 | ||
i= | 3% | ||
Cash flow | Table Value | Amount | Present Value |
Par(Maturity value) | 500,000 | 0.3644 | 182,200 |
Interest(Annuity) | 10,000 | 23.1148 | 231,148 |
Price of Bonds | 413,348 |
I = 12% / 4 times = 3%
N = 10 years * 4 payments per year = 40 payments
Interest(Annuity)= $500,000 * 2%(Stated quarterly rate) = $10,000
B.)
Table values based on | |||
n= | 40 | ||
i= | 2% | ||
Cash flow | Table Value | Amount | Present Value |
Par(Maturity value) | 500,000 | 0.5102 | 255,100 |
Interest(Annuity) | 15,000 | 27.3555 | 410,333 |
Price of Bonds | 665,433 |
I = 8% / 4 times = 2%
N = 10 years * 4 payments per year = 40 payments
Interest (Annuity) = $500,000 * 3%(Stated quarterly rate) = $15,000
C.)
Table values based on | |||
n= | 20 | ||
i= | 2% | ||
Cash flow | Table Value | Amount | Present Value |
Par(Maturity value) | 500,000 | 0.6944 | 347,200 |
Interest(Annuity) | 15,000 | 16.3514 | 245,271 |
Price of Bonds | 592,471 |
I = 8% / 4 times = 2%
N = 5 years * 4 payments per year = 20 payments
Interest (Annuity) = $500,000 * 3%(Stated quarterly rate) = $15,000
D.)
Table values based on | |||
n= | 20 | ||
i= | 3% | ||
Cash flow | Table Value | Amount | Present Value |
Par(Maturity value) | 500,000 | 0.5787 | 289,350 |
Interest(Annuity) | 10,000 | 14.8775 | 148,775 |
Price of Bonds | 438,125 |
I = 12% / 4 times = 3%
N = 5 years * 4 payments per year = 20 payments
Interest (Annuity) = $500,000 * 2%(Stated quarterly rate) = $10,000
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