Question

Thompson Corporation is planning to issue $130,000, five-year, 6 percent bonds. Interest is payable semi-annually each June 30 and December 31. All of the bonds will be sold on July 1, 2017; they mature on June 30, 2022.

Required:Compute the issue (sale) price on July 1, 2017, if the yield is:  (Round time value factor to 4 decimal places. Round the final answers to the nearest dollar amount.)

a. 6%

b. 5%

c.7%

Answer 1

Solution a:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (6%/2)	3.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.7441	*	$1,30,000	=	$96,733
Interest (Annuity) [$130,000*6%*6/12]	8.5302	*	$3,900	=	$33,268
Price of Bonds					$1,30,001

Solution b:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (5%/2)	2.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.7812	*	$1,30,000	=	$1,01,556
Interest (Annuity) [$130,000*6%*6/12]	8.7521	*	$3,900	=	$34,133
Price of Bonds					$1,35,689

Solution c:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (7%/2)	3.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.7089	*	$1,30,000	=	$92,157
Interest (Annuity) [$130,000*6%*6/12]	8.3166	*	$3,900	=	$32,435
Price of Bonds					$1,24,592