Question

Issue Price

The following terms relate to independent bond issues:

1. 430 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments
2. 430 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments
3. 810 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments
4. 2,110 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

Answer:

Situation	Selling Price of the Bond Issue
a	$                                            591,360	=640*924
b	$                                            590,720	=640*923
c	$                                            708,750	=810*875
d	$                                        1,217,470	=2110*577

Working Notes:

a)
n=5
I=10%

	Amount	Factor	Present value
Interest	80	3.7908	303
Principal	1000	0.6209	621
Bond issue price			924

b)
n=10
I=5%

	Amount	Factor	Present value
Interest	40	7.7217	309
Principal	1000	0.6139	614
Bond issue price			923

c)
n=20
I=5%

	Amount	Factor	Present value
Interest	40	12.4622	498
Principal	1000	0.3769	377
Bond issue price			875

d)
n=30
I=5%

	Amount	Factor	Present value
Interest	30	15.3725	461
Principal	500	0.2314	116
Bond issue price			577