On December 31, 2019, Repsol Corp issued $1,400,000, 9%, 5-year bonds. Interest is payable semiannually on...

On December 31, 2019, Repsol Corp issued $1,400,000, 9%, 5-year bonds. Interest is payable semiannually on June 30 and December 31. The corporation uses the effective interest method of amortizing bond premium or discount. Using a financial calculator or excel, estimate the issue price of the bonds under the following three assumptions: (1) Market Rate is 9%
(2) Market Rate is 8%

Solutions

Expert Solution


1.)	Market rate	9%

		Amount $
	Present of value of Maturity	901,499	=PV(0.045,10,0,-1400000)
	Add: Present value of Interest payment	498,501	=PV(0.045,10,-63000,0)
	Issue price of bond	1,400,000

	*63,000 ( 1,400,000 x 9% x 1/2 )

2.)	Market rate	8%

		Amount $
	Present of value of Maturity	945,790	=PV(0.04,10,0,-1400000)
	Add: Present value of Interest payment	510,986	=PV(0.04,10,-63000,0)
	Issue price of bond	1,456,776

	*63,000 ( 1,400,000 x 9% x 1/2 )

3.)	Assuming Market rate	10%

		Amount $
	Present of value of Maturity	859,479	=PV(0.05,10,0,-1400000)
	Add: Present value of Interest payment	486,469	=PV(0.05,10,-63000,0)
	Issue price of bond	1,345,948

	*63,000 ( 1,400,000 x 9% x 1/2 )

ekkarill92 answered 1 year ago

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