On january 1, canglon, inc., issues 19%, 5-year binds with a face value if $150,000 when...
On january 1, canglon, inc., issues 19%, 5-year binds with a face value if $150,000 when the effective rate is 12%. Interest is to be paid semiannually.
Prepare calculations to prove that the selling price of the bonds is $138,959.90.
What is the present value if principal?
What is the present value if interest?
Homework Answers
| Bond characterstics | Amount | ||||||
| 1-a) | Principal | 150,000 | |||||
| interest | 7,500 | ||||||
| Market interest rate | 6% | ||||||
| periods to maturity | 10 | ||||||
| issue price | 138,959 | ||||||
| Calculation of bond issue price | |||||||
| Where | |||||||
| i= | 6.00% | ||||||
| t= | 10 | ||||||
| principal | * | PV of $1 at 6% for 10 yrs = | |||||
| 150,000 | * | 0.55839 | = | 83758.5 | |||
| interest | * | PV of ordinary annuity at 6%= | |||||
| 7500 | * | 7.36009 | = | 55200.4 | |||
| bond issue price | 138958.9 | ||||||
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