GMAT Corporation is planning to issue bonds with a face value of $251,000 and a coupon...

GMAT Corporation is planning to issue bonds with a face value of $251,000 and a coupon rate of 4 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Determine the issuance price of the bonds assuming an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)

Issue Price:

Expert Solution

*Bonds issue price is calculated by ADDING the:*
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate	Face Value	$ 251,000.00
Market Rate	6.00%	3.00%	Term (in years)	10
Coupon Rate	4.00%	2.00%	Total no. of interest payments	20

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 251,000.00	at	3.00%	Interest rate for	20	term payments
PV of $1	0.553676
PV of	$ 251,000.00	=	$ 251,000.00	x	0.553676	=	$ 138,973	A

Interest payable per term	at	2.000%	on	$ 251,000.00
Interest payable per term	$ 5,020.00

PVAF of 1$	for	3.0%	Interest rate for	20	term payments
PVAF of 1$	14.87747
PV of Interest payments	=	$ 5,020.00	x	14.87747	=		$ 74,685	B

				Bond Value (A+B)			$ 213,658

Issue Price =$213,658

The final answer may vary due to decimal place in PV factor.

If answer do not match, leave a comment so that I can help.

ekkarill92 answered 3 years ago

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