Question

All the current "answers" are wrong.

Compute the issue price of each of the following bonds. Round your answers to the nearest dollar.

b. $10,000,000 face value, serial bonds repayable in 40 equal semiannual installments of $500,000, which includes coupon payments and repayment of principal, for 20 years, priced on the market to yield 6% compounded annually.

Answer 1

	Issue price of bond=Present value of future cashflows
	Future cashflow=Semi-annual instalments of $500000.
	Repayment perios=20 years=20*2=40 semi-annual periods
	Yield=6% p.a=3% for a semi-annual period
	Issue price of bond=500000*Present value annuity factor of 3% for 40 years								(For present value annuity check present value table)
	Issue price of bond=500000*23.115=$ 11557500
		Year	Present Value
		1	0.970874
		2	0.942596
		3	0.915142
		4	0.888487
		5	0.862609
		6	0.837484
		7	0.813092
		8	0.789409
		9	0.766417
		10	0.744094
		11	0.722421
		12	0.70138
		13	0.680951
		14	0.661118
		15	0.641862
		16	0.623167
		17	0.605016
		18	0.587395
		19	0.570286
		20	0.553676
		21	0.537549
		22	0.521893
		23	0.506692
		24	0.491934
		25	0.477606
		26	0.463695
		27	0.450189
		28	0.437077
		29	0.424346
		30	0.411987
		31	0.399987
		32	0.388337
		33	0.377026
		34	0.366045
		35	0.355383
		36	0.345032
		37	0.334983
		38	0.325226
		39	0.315754
		40	0.306557
		Total	23.11477