Question

Brief Exercise 10-15 On January 1, 2018, Carvel Corp. issued five-year bonds with a face value of $550,000 and a coupon interest rate of 6%, with interest payable semi-annually. Click here to view the factor table. x Your answer is incorrect. Try again. How much would Carvel receive from the sale of these bonds if the market interest rate was 5%? (Round answer to the nearest whole dollar, e.g. 5,275. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Amount Amount LINK TO TEXT

Answer 1

CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY
Step 1 : Calculation of Semi Annual Coupon Payments
Par value of the bond issued is   =			$5,50,000
Annual Coupon %			6.00%
Annual Coupon Amount			$33,000
Semi Annual Coupon Amount			$16,500
Step 2: Calculate number of years to Maturity
Number of years to maturity = 5 years
Interest is paid semi annyally so total period = 5 Years * 2 = 10 Periods
Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
Market rate of interest or Yield to Maturity or Required Return = 5%
Bonds interest is paid semi annualy means so discounting factor = 5 % /2= 2.5 %
PVF = 1 / Discount rate = 1/ 1.025
Result of above will again divide by 1.025 , repeat this lat period
Period	Interest	Amount (In Million)	PVF @ 2.5%	PresentValue
1	Interest	$16,500.00	0.97561	$16,098
2	Interest	$16,500.00	0.95181	$15,705
3	Interest	$16,500.00	0.92860	$15,322
4	Interest	$16,500.00	0.90595	$14,948
5	Interest	$16,500.00	0.88385	$14,584
6	Interest	$16,500.00	0.86229	$14,228
7	Interest	$16,500.00	0.84126	$13,881
8	Interest	$16,500.00	0.82074	$13,542
9	Interest	$16,500.00	0.80072	$13,212
10	Interest	$16,500.00	0.78119	$12,890
10	Bond Principal Value	$5,50,000.00	0.78119	$4,29,655
	Total			$5,74,063
	Current Bonds Price =			$5,74,063
	Answer = $ 574,063