Question

Complete the below table to calculate the price of a 1.7 million bond issue under each of the following independent assumptions. Use appropriate factors from tables.

1. Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%

2.Maturity 20 years, interest paid semiannually, stated rate 10%, effective (market) rate 12%

3. Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%

4.Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%

5.Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%

Chart:

n=

i=

Cash flow                      Amount           Present Value

Interest:

Principal:

Price of Bonds:

Answer 1

Answer 1.
Table Value Based on
n=	12
i=	12.00%
Cash Flow	Amount	Present Value
Interest - $1,700,000 X 10%	170,000	1,053,043
		($170,000 X 6.19437)
Principal	1,700,000.00	436,356
		($1,700,000 X 0.25668)
Issue Price of Bonds		1,489,399
Discount on issue of Bonds		210,601
Answer 2.
Table Value Based on
n=	40	(20 Years X 2)
i=	6.00%	(12% / 2)
Cash Flow	Amount	Present Value
Interest - $1,700,000 X 10% X 6/12	85,000	1,278,936
		($85,000 X 15.04630)
Principal	1,700,000.00	165,274
		($1,700,000 X 0.25668)
Issue Price of Bonds		1,444,210
Discount on issue of Bonds		255,790
Answer 3.
Table Value Based on
n=	20	(10 Years X 2)
i=	5.00%	(10% / 2)
Cash Flow	Amount	Present Value
Interest - $1,700,000 X 12% X 6/12	102,000	1,271,145
		($102,000 X 12.46221)
Principal	1,700,000.00	640,713
		($1,700,000 X 0.37689)
Issue Price of Bonds		1,911,858
Premium on issue of Bonds		211,858
Answer 4.
Table Value Based on
n=	40	(10 Years X 2)
i=	5.00%	(10% / 2)
Cash Flow	Amount	Present Value
Interest - $1,700,000 X 12% X 6/12	102,000	1,750,227
		($102,000 X 17.15909)
Principal	1,700,000.00	241,485
		($1,700,000 X 0.14205)
Issue Price of Bonds		1,991,712
Premium on issue of Bonds		291,712
Answer 5.
Table Value Based on
n=	40	(10 Years X 2)
i=	6.00%	(12% / 2)
Cash Flow	Amount	Present Value
Interest - $1,700,000 X 12% X 6/12	102,000	1,534,725
		($102,000 X 15.04630)
Principal	1,700,000.00	165,275
		($1,700,000 X 0.09722)
Issue Price of Bonds		1,700,000
Premium on issue of Bonds		(0)