Asked by garrett miles on Jun 20, 2024
Verified
On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years, and pay 8% annual interest, payable each June 30 and December 31. On the issue date, the market rate of interest for the bonds is 10%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
Present Value Tables
A set of tables used to calculate the present value of an amount of money to be received in the future by taking into account a specific interest rate.
- Identify the effects of fluctuations in market interest rates on the valuation and issuance returns of bonds.
- Ascertain the present value of annuities and lone payments, applying these determinations to bond and loan appraisals.
Verified Answer
FA
Firman AkbarJun 26, 2024
Final Answer :
Present value of principal $300,000 x 0.6139 = $184,170
Present value of interest $300,000 x 0.04 x 7.7217 = 92,660
Selling price of the bond $276,830
Present value of interest $300,000 x 0.04 x 7.7217 = 92,660
Selling price of the bond $276,830
Learning Objectives
- Identify the effects of fluctuations in market interest rates on the valuation and issuance returns of bonds.
- Ascertain the present value of annuities and lone payments, applying these determinations to bond and loan appraisals.
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