Question

E10-3 (Algo) Computing Issue Prices of Bonds Sold at Par, at a Discount, and at a Premium LO10-2, 10-4, 10-5 LaTanya Corporation is planning to issue bonds with a face value of $102,500 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: Compute the issue (sales) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 6 percent. Issue price b. Case B: Market interest rate (annual): 4 percent. Issue price c. Case C: Market interest rate (annual): 7 percent. Issue price

Answer 1

Table values are based on:				PVAF(i,n)	PVIF(i,n)
n=	7		CASE A	5.58238	0.66506
i=	6.0%		CASE B	6.00205	0.75992
Cash Flow	Amount	Present Value	CASE C	5.38929	0.62275
Interest	$102,500*6% =$6,150	$34,332
Principal	$102,500	$68,169
Price of Bonds		$1,02,500
Table values are based on:
n=	7
i=	4.0%
Cash Flow	Amount	Present Value
Interest	$102,500*6% =$6,150	$36,913
Principal	$102,500	$77,892
Price of Bonds		$1,14,804
Table values are based on:
n=	7
i=	7.0%
Cash Flow	Amount	Present Value
Interest	$102,500*6% =$6,150	$33,144
Principal	$102,500	$63,832
Price of Bonds		$96,976
E10-10
Table values are based on:
n=	3
i=	7.0%
Cash Flow	Amount	Present Value
Interest	$290,000*6% =$17,400	$45,663
Principal	$290,000	$2,36,727
Price of Bonds		$2,82,390
Date	Interest Payment($290,000*6.00%)	Interest expenses(Bond carrying amount*7%)	Discount amorrtization	Bond carrying amount
Jan 01, Year 1				2,82,390
Dec 31, Year 1	17,400	19,767	2,367	2,84,757
Dec 31, Year 2	17,400	19,933	2,533	2,87,290
Dec 31, Year 3	17,400	20,110	2,710	2,90,000
		Year 1	Year 2
	Interest expenses	$19,767	$19,933
	Bonds Payable	$2,84,757	$2,87,290