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On January 1, 2018, Shirley Corporation purchased 10% bonds dated January 1, 2018, with a face...

On January 1, 2018, Shirley Corporation purchased 10% bonds dated January 1, 2018, with a face amount of $18 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.)

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Answer #1

Note: The answer may vary slightly due to rounding off differences as per annuity tables.

Bond Value # (Face value x PVAF for N th year) + (Interest x pVAF for N years) In the current scenario interest is paid semi annually, therefore interest half yearly would be $18,000,000 x 10% x 6/12 $900,000. Years till maturity 10 years but since interest is paid semi annually there are 10 x2- 20 periods. Face value $18,000,000 N 20 Coupon Interest rate 10% Interest half yearly $900,000 Market yield-12%, but since interest is paid semi annually market yield would be-696 Present value annuity factor (PVAF) for 20th year @ 6%-0.3118 (Refer annuity table) Present value annuity factor (PVAF) for 20 years @ 6%-11.4699 (Refer annuity table) Bond Value (Face value x PVAF for N th year) + (Interest x PVAF for N years) -(18000000 x0.3118) (900000 x 11.4699) -5612400 10322910 -$15,935,310 The price of the bonds at January 1, 2018 would be approximately $15,935,310

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