Question

Complete the below table to calculate the price of a $1.5 million bond issue under each of the following independent assumptions (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1):

1. Maturity 15 years, interest paid annually, stated rate 8%, effective (market) rate 10%.
2. Maturity 15 years, interest paid semiannually, stated rate 8%, effective (market) rate 10%.
3. Maturity 5 years, interest paid semiannually, stated rate 10%, effective (market) rate 8%.
4. Maturity 10 years, interest paid semiannually, stated rate 10%, effective (market) rate 8%.
5. Maturity 10 years, interest paid semiannually, stated rate 10%, effective (market) rate 10%.

Answer 1

Req 1
Annual cash interest =1500000*8% =	120000
n = 15
I = 10%
Cashflows		Amount	PVF	Present value
Annual cash interest		120000	7.60608	912729.6
Maturity value		1500000	0.239392	359088
Price of bonds				1271818
Req 2.
Semi annual Cash interest = 1500000*8%*6/12=	60000
n= 30
I = 5%
Cashflows		Amount	PVF	Present value
Semi-Annual cash interest	60000	15.37245	922347
Maturity value		1500000	0.231377	347065.5
Price of bonds				1269413
Req 3.
Semi annual cash interest = 1500000*10%*6/12= 75000
n = 10
I = 4%
Cashflows		Amount	PVF	Present value
Semi-Annual cash interest	75000	8.1109	608317.5
Maturity value		1500000	0.675564	1013346
Price of bonds				1621664
Req 4.
Semi annual cash interest = 1500000*10%*6/12= 75000
n = 20
I = 4%
Cashflows		Amount	PVF	Present value
Semi-Annual cash interest	75000	13.59033	1019275
Maturity value		1500000	0.456387	684580.5
Price of bonds				1703855
Req 5.
Semi annual cash interest = 1500000*10%*6/12= 75000
n = 20
I = 5%
Cashflows		Amount	PVF	Present value
Semi-Annual cash interest	75000	12.46221	934665.8
Maturity value		1500000	0.376889	565333.5
Price of bonds				1499999