Williams Company plans to issue bonds with a face value of $605,500 and a coupon rate...

Williams Company plans to issue bonds with a face value of $605,500 and a coupon rate of 4 percent. The bonds will mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds are 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.)

Determine the issuance price of the bonds assuming an annual market rate of interest of 4 percent.

Expert Solution

Face Value	$ 605500
Coupon Rate	4%
Period	10 Years
Market Rate	4%
Semiannual Interest	12110(605500*4%/2)

We have to calculate the price on Jan 1 by discounting the future cashflows at market rate

Calculating the price of bond
	Cash Flow	PV Factor @ 4% semiannually)	Present Value
Year 1	12,110	0.9804	11,873
Year 1	12,110	0.9612	11,640
Year 2	12,110	0.9423	11,412
Year 2	12,110	0.9238	11,188
Year 3	12,110	0.9057	10,968
Year 3	12,110	0.8880	10,753
Year 4	12,110	0.8706	10,542
Year 4	12,110	0.8535	10,336
Year 5	12,110	0.8368	10,133
Year 5	12,110	0.8203	9,934
year 6	12,110	0.8043	9,740
year 6	12,110	0.7885	9,549
Year 7	12,110	0.7730	9,361
Year 7	12,110	0.7579	9,178
Year 8	12,110	0.7430	8,998
Year 8	12,110	0.7284	8,821
Year 9	12,110	0.7142	8,649
Year 9	12,110	0.7002	8,479
Year 10	12,110	0.6864	8,313
Year 10	6,17,610	0.6730	4,15,634
Total			6,05,500

Price of the bond		6,05,500

ekkarill92 answered 1 year ago

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