Homework Answers
Answer
- Correct Answer = Option #2: $ 92,561
- Concept
|
Bonds issue price is calculated by ADDING the: |
|
Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and |
|
Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor] |
- Workings
|
Face Value |
$ 100,000.00 |
|
Term (in years) |
10 |
|
Total no. of interest payments |
20 |
|
Annual Rate |
Applicable rate, because of Semi Annual payments |
|
|
Market Rate |
6.0% |
3.0% |
|
Coupon Rate |
5.0% |
2.5% |
- Answer calculation
|
Amount |
PV factor |
Present Values |
|
|
PV of Face Value of |
$ 100,000.00 |
0.553675754 |
$ 55,367.58 |
|
PV of Interest payments of |
$ 2,500.00 |
14.87747486 |
$ 37,193.69 |
|
Issue Price of Bonds |
$ 92,561.26 ANSWER |
||
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