Question

When the market rate of interest was 12%, Halprin Corporation issued $534,000, 11%, four-year bonds that pay interest annually. The selling price of this bond issue was _____. Use the following table, if needed.

Present Value of $1 at Compound Interest

Periods	5%	6%	7%	10%	12%
1	0.95238	0.94340	0.93458	0.90909	0.89286
2	0.90703	0.89000	0.87344	0.82645	0.79719
3	0.86384	0.83962	0.81630	0.75132	0.71178
4	0.82270	0.79209	0.76290	0.68301	0.63552
5	0.78353	0.74726	0.71299	0.62092	0.56743
6	0.74622	0.70496	0.66634	0.56447	0.50663
7	0.71068	0.66506	0.62275	0.51316	0.45235
8	0.67684	0.62741	0.58201	0.46651	0.40388
9	0.64461	0.59190	0.54393	0.42410	0.36061
10	0.61391	0.55840	0.50835	0.38554	0.32197

Present Value of an Annuity of $1 at Compound Interest

Periods	5%	6%	7%	10%	12%
1	0.95238	0.94340	0.93458	0.90909	0.89286
2	1.85941	1.83339	1.80802	1.73554	1.69005
3	2.72325	2.67301	2.62432	2.48685	2.40183
4	3.54595	3.46511	3.38721	3.16987	3.03735
5	4.32948	4.21236	4.10020	3.79079	3.60478
6	5.07569	4.91732	4.76654	4.35526	4.11141
7	5.78637	5.58238	5.38929	4.86842	4.56376
8	6.46321	6.20979	5.97130	5.33493	4.96764
9	7.10782	6.80169	6.51523	5.75902	5.32825
10	7.72173	7.36009	7.02358	6.14457	5.65022

Answer 1

Correct Answer:

Issue price of bond = $ 517,781.619

Working:

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$                    5,34,000	at	12.00%	Interest rate for	4	term payments
PV of $1	0.63552
PV of	$                    5,34,000	=	$                5,34,000	x	0.6355	=	$                3,39,367.68	A
Interest payable per term	at	11.0%	on	$   5,34,000
Interest payable per term	$                       58,740
PVAF of 1$	for	12.0%	Interest rate for	4	term payments
PVAF of 1$	3.0373
PV of Interest payments	=	$        58,740.00	x	3.03735	=		$                1,78,413.94	B
				Bond Value (A+B)			$              5,17,781.619	C =A+B

End of answer.

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