Cullumber Corporation issues $550,000 of 9% bonds, due in 9 years, with interest payable semiannually. At...
Cullumber Corporation issues $550,000 of 9% bonds, due in 9
years, with interest payable semiannually. At the time of issue,
the market rate for such bonds is 10%.
Compute the issue price of the bonds. (Round present
value factor calculations to 5 decimal places, e.g. 1.25124 and the
final answer to 0 decimal places e.g.
58,971.)
| Issue price of the bonds | $
|
Homework Answers
| Issue price of the bonds is $ 5,17,854 |
| Present value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | |||||
| = | (1-(1+0.05)^-18)/0.05 | i | = | 10%/2 | = | 5.00% | ||
| = | 11.68959 | n | = | 9*2 | = | 18 | ||
| Present value of 1 | = | (1+i)^-n | ||||||
| = | (1+0.05)^-18 | |||||||
| = | 0.41552 | |||||||
| Present value of coupon | = | $ 5,50,000 | * | 4.50% | * | 11.68959 | = | $ 2,89,317 |
| Present value of par value | = | $ 5,50,000 | * | 0.415521 | 0.41552 | = | $ 2,28,536 | |
| Present value of cash flows | $ 5,17,854 | |||||||
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