Question

Issue Price

The following terms relate to independent bond issues:

650 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments

650 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments

760 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments

2,060 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments

Use the appropriate present value table:

PV of $1 and PV of Annuity of $1

Required:

Assuming the market rate of interest is 10%, calculate the selling price for each bond issue. If required, round your intermediate calculations and final answers to the nearest dollar.

Answer 1

1	Face Value	=	$       1,000
	Interest rate	=	8%
	Number of years	=	5
	Interest payment	=	Annual
	Market rate of interest	=	10%
	Interest amount	=	$1,000 X 8%
		=	80
	Present value of Bond	=	$ 80 X Present Value of Annuity factor (10% , 5) + $1,000 Present value of Interest factor (10% , 5)
		=	$ 80 X PVAF (10% , 5) + $1,000 PVIF (10% , 5)
		=	($ 80 X 3.86537) + ($1,000 X 0.65606)
		=	$           965
2	Face Value	=	$       1,000
	Interest rate	=	8%
	Number of years	=	5
	Interest payment	=	Semi annual
	Number of periods (5 X 2)	=	10
	Interest amount	=	$1,000 X 8% X 6/12
		=	$             40
	Market rate of interest (10% / 2)	=	5%
	Present value of Bond	=	$ 40 X PVAF (5% , 10) + $1,000 PVIF (5% , 10)
		=	($ 40 X 7.721735) + ($1,000 X 0.613913)
		=	$           923
3	Face Value	=	$       1,000
	Interest rate	=	8%
	Number of years	=	10
	Interest payment	=	Semi annual
	Number of periods (5 X 2)	=	20
	Interest amount	=	$1,000 X 8% X 6/12
		=	$             40
	Market rate of interest (10% / 2)	=	5%
	Present value of Bond	=	$ 40 X PVAF (5% , 20) + $1,000 PVIF (5% , 20)
		=	($ 40 X 12.46221) + ($1,000 X 0.376889)
		=	$           875
4	Face Value	=	$           500
	Interest rate	=	12%
	Number of years	=	15
	Interest payment	=	Semi annual
	Number of periods (15 X 2)	=	30
	Interest amount	=	$500 X 12% X 6/12
		=	$             30
	Market rate of interest (10% / 2)	=	5%
	Present value of Bond	=	$ 30 X PVAF (5% , 30) + $1,000 PVIF (5% , 30)
		=	($ 30 X 15.37245) + ($1,000 X 0.231377)
		=	$           693