Question

James Corporation is planning to issue bonds with a face value of $503,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: Compute the issue (sales) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 4 percent. Issue price b. Case B: Market interest rate (annual): 6 percent. Issue price c. Case C: Market interest rate (annual): 8.5 percent. Issue price

Answer 1

Issue price is equal to the present value of all future coupon payments and the par value

= 503,000*6%*1/2*PVAF(2%, 20 periods) + 503,000*PVF(2%, 20 periods)

= 15,090*16.351 +503,000*0.673

= $585,255.59

b.Rate is 6%

Issue Price = 503,000*6%*1/2*PVAF(3%, 20 periods) + 503,000*PVF(3%, 20 periods)

= $503,000

c.Rate is 8.5%

Issue Price = 503,000*6%*1/2*PVAF(4.25%, 20 periods) + 503,000*PVF(4.25%, 20 periods)

= 15,090*13.294 +503000*0.435

= $419,411.46