Question

In: Accounting

Your company plans to issue bonds later in the upcoming year. But with the economic uncertainty...


Your company plans to issue bonds later in the upcoming year. But with the economic uncertainty and varied interest rates, it is not clear how much money the company will receive when the bonds are issued. The company is committed to issuing 2,500 bonds, each of which will have a face value of $1,000, a stated interest rate of 7 percent paid annually, and a period to maturity of 10 years. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)  


Required: 

 1. Compute the bond issue proceeds assuming a market interest rate of 7 percent. (When computing proceeds, round the present value of the face amount and of the annual interest payment to the nearest thousand dollars.) Also, express the bond issue price as a percentage by comparing the total proceeds to the total face value.  


2. Compute the bond issue proceeds assuming a market interest rate of 6 percent. (When computing proceeds, round the present value of the face amount and of the annual interest payment to the nearest thousand dollars.) Also, express the bond issue price as a percentage by comparing the total proceeds to the total face value. 


3. Compute the bond issue proceeds assuming a market interest rate of 8 percent. (When computing proceeds, round the present value of the face amount and of the annual interest payment to the nearest thousand dollars.) Also, express the bond issue price as a percentage by comparing the total proceeds to the total face value.  

Solutions

Expert Solution

Part-1
Table Or Calculator Function PVF
Face Value Of Bond Issuance From Future Value
(2500 Bonds X $1000)		 $2,500,000.00
Market Interest Rate 7%
Present Value Of Proceeds From Bond Issuance $2,500,000.00
Bond Issue Price As A % Of Face Value 100%
Part-2
Table Or Calculator Function PVF
Face Value Of Bond Issuance From Future Value (2500 Bonds X $1000) 2500000
Market Interest Rate 6%
Present Value Of Proceeds From Bond Issuance
Present Value of Interest : (2500000X 7%X PVAF @ 6% for 10)
(2500000X7%X 7.36)= $1288000
Presernt Value of Materutiry Valeu: (2500000X 6%PVIF at end of 10 year)
(2500000X0.5584)		 2684000
Bond Issue Price As A % Of Face Value 107%
Part-3
Table Or Calculator Function PVF
Face Value Of Bond Issuance From Future Value (2500 Bonds X $1000) 2500000
Market Interest Rate 8%
Present Value Of Proceeds From Bond Issuance
Present Value of Interest : (2500000X 7%X PVAF @ 8% for 10)
(2500000X7%X 6.7100)= $1174250
Presernt Value of Materutiry Valeu: (2500000X 8%PVIF at end of 10 year)
(2500000X0.4632)		 2332250
Bond Issue Price As A % Of Face Value 93%

ekkarill92 answered 2 years ago
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