Ultimate Butter Popcorn issues 6%, 15-year bonds with a face amount of $42,000. The market interest...

Ultimate Butter Popcorn issues 6%, 15-year bonds with a face amount of $42,000. The market interest rate for bonds of similar risk and maturity is 5%. Interest is paid semiannually. What is the issue price?

Solutions

Expert Solution

Issue Price of the Bond

The Issue Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Face Value [$42,000]	FV	42,000
Coupon Amount [$42,000 x 6.00% x ½]	PMT	1,260
Market Interest Rate or Required Rate of Return [5.00% x ½]	1/Y	2.50
Time to Maturity [15 Years x 2]	N	30
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $46,395.36.

“Therefore, the Issue Price of the Bond will be $46,395.36”

ekkarill92 answered 1 year ago

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