Homework Answers
Solution 1:
Interest to be paid in each interest payment = $500,000 * 6%*6/12 = $15,000
Solution 2:
Market rate of interest = 5.8% = 2.9% semiannual
Present value of interest payments = $15,000 * Cumulative PV factor at 2.90% for 10 periods
= $15,000 * 8.57390 = $128,609
Solution 3:
Issue price of bond = Present value of interest payment + Present value of face amount
= $128,609 + $500,000 * PV factor at 2.9% for 10th period
= $128,609 + $500,000 * 0.75136 = $504,289
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