Question

Issue Price

The following terms relate to independent bond issues:

1. 420 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments
2. 420 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments
3. 820 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments
4. 2,190 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.

Situation	Selling Price of the Bond Issue
a.	$fill in the blank 1
b.	$fill in the blank 2
c.	$fill in the blank 3
d.	$fill in the blank 4

Answer 1

a.

Particulars	Cash Flow ($)	Calculation	Amount ($)
I.	Face Value of Bond	$420000 [$1000 * 420 bonds]	= Cash Flow * PVIF of $1 (i%, n) = $420000 * $1(10%,5 years) = $420000 * 0.62092 = $2,60,786	2,60,786
II.	Interest Payments of Bond	$33600 [($1000 * 8%) * 420 bonds]	= Cash Flow * PVAF of $1 (i%, n) = $33600 * $1(10%,5 years) = $33600 * 3.79079 = $127371	1,27,371
Selling Price of the Bond Issue	I + II	3,88,157

b.

Particulars	Cash Flow ($)	Calculation	Amount ($)
I.	Face Value of Bond	$420000 [$1000 * 420 bonds]	= Cash Flow * PVIF of $1 (i%, n) = $420000 * $1(5%,10 years) = $420000 * 0.61391 = $2,57,842	2,57,842
II.	Interest Payments of Bond	$16800 [($1000 * 8%) / 2] * 420 bonds]	= Cash Flow * PVAF of $1 (i%, n) = $16800 * $1(5%,10 years) = $16800 * 7.72173 = $1,29,725	1,29,725
Selling Price of the Bond Issue	I + II	3,87,567

c.

Particulars	Cash Flow ($)	Calculation	Amount ($)
I.	Face Value of Bond	$820000 [$1000 * 820 bonds]	= Cash Flow * PVIF of $1 (i%, n) = $820000 * $1(5%,20 years) = $820000 * 0.37689 = $3,09,050	3,09,050
II.	Interest Payments of Bond	$32800 [($1000 * 8%) / 2] * 820 bonds]	= Cash Flow * PVAF of $1 (i%, n) = $32800 * $1(5%,20 years) = $32800 * 12.46221 = $4,08,760	4,08,760
Selling Price of the Bond Issue	I + II	7,17,810

d.

Particulars	Cash Flow ($)	Calculation	Amount ($)
I.	Face Value of Bond	$1095000 [$500 * 2190 bonds]	= Cash Flow * PVIF of $1 (i%, n) = $1095000 * $1(5%,30 years) = $1095000 * 0.23138 = $2,53,361	2,53,361
II.	Interest Payments of Bond	$65700 [($500 * 12%) / 2] * 2190 bonds]	= Cash Flow * PVAF of $1 (i%, n) = $65700 * $1(5%,30 years) = $65700 * 15.37245 = $10,09,970	10,09,970
Selling Price of the Bond Issue	I + II	12,63,331