Question

On October 1, 2017, Eastern Timber Inc. has available for issue $720,000 bonds due in four years. Interest at the rate of 9.50% is to be paid quarterly. Calculate the issue price if the market interest rate is: (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

Issue Price

a.10.50%

b.9.50%

c.8.50%

Answer 1

	Bond value		720000
	Interest rate		9.50%
	Quaterly interest		22800
		If Market Interest rate
	Amount	[email protected]%	PV @ 10.5%	Pvf @ 9.5%	PV @ 9.5%	pv@ 8.5%	PV @8.5%
Interest Received
Q-1	$22,800	0.97	$22,222	0.98	$22,271	0.98	$22,326
Q2	$22,800	0.95	$21,659	0.95	$21,754	0.96	$21,861
Q3	$22,800	0.93	$21,110	0.93	$21,250	0.94	$21,406
Q4	$22,800	0.90	$20,575	0.91	$20,757	0.92	$20,961
Q5	$22,800	0.88	$20,054	0.89	$20,275	0.90	$20,525
Q6	$22,800	0.86	$19,546	0.87	$19,805	0.88	$20,098
Q7	$22,800	0.84	$19,050	0.85	$19,345	0.86	$19,679
Q8	$22,800	0.81	$18,568	0.83	$18,897	0.85	$19,270
Q9	$22,800	0.79	$18,097	0.81	$18,458	0.83	$18,869
Q10	$22,800	0.77	$17,638	0.79	$18,030	0.81	$18,476
Q11	$22,800	0.75	$17,192	0.77	$17,612	0.79	$18,092
Q12	$22,800	0.73	$16,756	0.75	$17,203	0.78	$17,715
Q13	$22,800	0.72	$16,331	0.74	$16,804	0.76	$17,347
Q14	$22,800	0.70	$15,917	0.72	$16,414	0.74	$16,986
Q15	$22,800	0.68	$15,514	0.70	$16,033	0.73	$16,632
Q16	$22,800	0.66	$15,121	0.69	$15,661	0.71	$16,286
Tota Interest received in 4 year	$364,800		$295,351		$300,570		$306,528
Maturity value at the end of 4 year	$720,000.00	0.671	$483,120.00	0.69	$496,800.00	0.71	$511,200.00
Total present value of bond	$1,084,800		$778,471		$797,370		$817,728