Question

In: Accounting

1/ Williams Company plans to issue bonds with a face value of $608,000 and a coupon...

1/ Williams Company plans to issue bonds with a face value of $608,000 and a coupon rate of 6 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 6 percent.

2/ James Corporation is planning to issue bonds with a face value of $509,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds will be 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.)

Required:

Compute the issue (sale) price on January 1 of this year for each of the following independent cases:

a. Case A: Market interest rate (annual): 4 percent.

b. Case B: Market interest rate (annual): 6 percent.

c. Case C: Market interest rate (annual): 8.5 percent.

3/ GMAT Corporation is planning to issue bonds with a face value of $251,000 and a coupon rate of 4 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Determine the issuance price of the bonds assuming an annual market rate of interest of 6.0 percent. (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.)

Expert Solution

Answer to Question 1:

Face Value = $608,000

Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3%
Semiannual Coupon = 3% * $608,000
Semiannual Coupon = $18,240

Time to Maturity = 10 years
Semiannual Perod to Maturity = 20

Annual Interest Rate = 6%
Semiannual Interest = 3%

Issue Price of Bonds = $18,240 * PVA of $1 (3%, 20) + $608,000 * PV of $1 (3%, 20)
Issue Price of Bonds = $18,240 * 14.877475 + $608,000 * 0.553676
Issue Price of Bonds = $608,000

Answer to Question 2:

Face Value = $509,000

Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3%
Semiannual Coupon = 3% * $509,000
Semiannual Coupon = $15,270

Time to Maturity = 10 years
Semiannual Perod to Maturity = 20

If interest rate is 4%:

Annual Interest Rate = 4%
Semiannual Interest = 2%

Issue Price of Bonds = $15,270 * PVA of $1 (2%, 20) + $509,000 * PV of $1 (2%, 20)
Issue Price of Bonds = $15,270 * 16.351433 + $509,000 * 0.672971
Issue Price of Bonds = $592,229

If interest rate is 6%:

Annual Interest Rate = 6%
Semiannual Interest = 3%

Issue Price of Bonds = $15,270 * PVA of $1 (3%, 20) + $509,000 * PV of $1 (3%, 20)
Issue Price of Bonds = $15,270 * 14.877475 + $509,000 * 0.553676
Issue Price of Bonds = $509,000

If interest rate is 8.50%:

Annual Interest Rate = 8.50%
Semiannual Interest = 4.25%

Issue Price of Bonds = $15,270 * PVA of $1 (4.25%, 20) + $509,000 * PV of $1 (4.25%, 20)
Issue Price of Bonds = $15,270 * 13.294366 + $509,000 * 0.434989
Issue Price of Bonds = $424,414

ekkarill92 answered 1 year ago

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