Question

The company could issue $2,500,000 of long-term bonds, due in 6 years with a stated rate of interest, paid semiannually, of 3%. The market rate for similar debt is 4%.
	Cash Received				Annual Cash Required
	Face amount
	Face rate
	Interest Payment periods
	Interest Payment
	Term
	Periods
	Market rate
	PV factors used		single sum
			annuity
	PV face
	PV interest Calculate in Excel, the cash received, and annual cash required with formulas visibile, as well as all other info.

Answer 1

• All working forms part of the answer
• Answer:

Face amount	$                       2,500,000.00
Face Rate	3%
Interest payment periods	12
Interest payment	$                             37,500.00
Term	6 years
Market Rate	4%
PV factors used:
PV factor $1	0.788493175582
PV Annuity Factor $1	10.575341220917
PV Face Value	$                       1,971,232.94
PV Interest	$                           396,575.30
Issue price of Bonds	$                       2,367,808.00

• Working for above:

Face amount	$ 2,500,000
Face Rate	3% [Semi annual = 1.5%]
Interest payment periods	12 [ 6 years x 2 semi annual payment each year]
Interest payment	=2500000*3%*6/12
Term	6 years
Market Rate	4% [rate to be used for Pv = 4%/2 semi annual = 2%]
PV factors used:
PV factor $1	=PV(4%/2,12,,1)*-1
PV Annuity Factor $1	=PV(4%/2,12,1)*-1
PV Face Value [Face value x PV factor $1]	=2500000*0.788493175582
PV Interest [Interest value x PV annuity factor $1]	=37500*10.575341220917
Issue price of Bonds	=1971233+396575