Question

Thompson Corporation is planning to issue $280,000, five-year, 5 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. Use Table 9C.1, Table 9C.2 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.) Issue price $ 280,000 (a) 5 percent (b) 2 percent (c) 6 percent

Answer 1

Issue Price of the bond= C× F × (1 − (1 + r)^-t)/r+F(1 + r)^t

^where, C = Interest Rate , F = Face Value, r = Market Interest Rate

Yield	Issue Price
5%	$ 280,000
2%	$ 319,779
6%	$ 268,058

Yield	Issue Price
0.05	=((280000*2.5%)*(1-(1.025)^-10))/0.025+280000/(1.025)^10
0.02	=((280000*2.5%)*(1-(1.01)^-10))/0.01+280000/(1.01)^10
0.06	=((280000*2.5%)*(1-(1.03^-10))/0.03+280000/(1.03)^10)