D' Souza, Inc., issues $900,000 of 11% bonds that pay interest semiannually and mature in seven...
D' Souza, Inc., issues $900,000 of 11% bonds that pay interest semiannually and mature in seven years. Assume that the market interest (yield) rate is 12% per year compounded semiannually. Compute the bond issuance price.
Homework Answers
| (note there will be slight difference in issue price calculation ,kindly use the factors as given | |||||||
| inn your question to get exact answer) | |||||||
| Bond characterstics | Amount | ||||||
| 1-a) | Principal | 900,000 | |||||
| interest | 49,500 | ||||||
| Market interest rate | 6% | ||||||
| periods to maturity | 14 | ||||||
| issue price | 858,172 | answer | |||||
| Calculation of bond issue price | |||||||
| Where | |||||||
| i= | 6.00% | ||||||
| t= | 14 | ||||||
| principal | * | PV of $1 at 6% for 14 yrs = | |||||
| 900,000 | * | 0.4423 | = | 398070 | |||
| interest | * | PV of ordinary annuity at 7%= | |||||
| 49500 | * | 9.29498 | = | 460102 | |||
| bond issue price | 858172 | ||||||
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