Question

LaTanya Corporation is planning to issue bonds with a face value of $101,000 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on December 31. All of the bonds will be sold on January 1 of this year. (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.) Required: Compute the issue (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 6 percent. b. Case B: Market interest rate (annual): 4 percent c. Case C: Market interest rate (annual): 7 percent.

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	7
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.66506	$101,000.00	$67,171
Interest (Annuity)	5.58238	$6,060.00	$33,829
Price of bonds			$101,000

Solution b:

Computation of bond price
Table values are based on:
n=	7
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.75992	$101,000.00	$76,752
Interest (Annuity)	6.00205	$6,060.00	$36,372
Price of bonds			$113,124

Solution c:

Computation of bond price
Table values are based on:
n=	7
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.62275	$101,000.00	$62,898
Interest (Annuity)	5.38929	$6,060.00	$32,659
Price of bonds			$95,557