Question

Issue Price

The following terms relate to independent bond issues:

1. 460 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments
2. 460 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments
3. 820 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments
4. 1,840 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments

Use the appropriate present value table:

PV of $1 and PV of Annuity of $1

Required:

Assuming the market rate of interest is 10%, calculate the selling price for each bond issue. If required, round your intermediate calculations and final answers to the nearest dollar.

Situation	Selling Price of the Bond Issue
a.	$
b.	$
c.	$
d.	$

Answer 1

Req a.
Annual Interest = 460,000*8% =	36800
n = 5
I = 10%
Cashflow		Amount $	PVF at 10%	Present value
Annual interest	36,800	3.79079	1,39,501
Maturity value	4,60,000	0.62092	285623.2
Price of bonds			4,25,124
Req b.
Semi annual cash inerest = 460000*8%*6/12 =	18400
n = 10
I = 5%
Cashflow		Amount $	PVF at 10%	Present value
Annual interest	18,400	7.7217	1,42,079
Maturity value	4,60,000	0.613913	282400
Price of bonds			4,24,479
Req c.
Semi annual cash inerest = 820000*8%*6/12 =	32800
n = 20
I = 5%
Cashflow		Amount $	PVF at 10%	Present value
Annual interest	32,800	12.4622	4,08,760
Maturity value	8,20,000	0.3769	309058
Price of bonds			7,17,818
Req d.
Semi annual cash inerest = 1840000*12%*6/12 =	110400
n = 30
I = 5%
Cashflow		Amount $	PVF at 10%	Present value
Annual interest	1,10,400	15.37245	16,97,118
Maturity value	18,40,000	0.23138	425739.2
Price of bonds			21,22,858