Chinook Inc. has available for issue a $3,220,000 bond due in eight years. Interest at the...
Chinook Inc. has available for issue a $3,220,000 bond due in eight years. Interest at the rate of 8.00% is to be paid semiannually. Calculate the issue price if the market interest rate is:
| Market Interest Rate | Issue Price | |
| a) | 7.5 | |
| b) | 8.00 | |
| c) | 8.75 |
Homework Answers
Solution a:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 16 | ||
| i= | 3.75% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.55487 | $3,220,000.00 | $1,786,678 |
| Interest (Annuity) | 11.87017 | $128,800.00 | $1,528,877 |
| Price of bonds | $3,315,555 | ||
Solution b:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 16 | ||
| i= | 4.00% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.53391 | $3,220,000.00 | $1,719,184 |
| Interest (Annuity) | 11.65230 | $128,800.00 | $1,500,816 |
| Price of bonds | $3,220,000 | ||
Solution c:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 20 | ||
| i= | 4.375% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.5040 | $3,220,000.00 | $1,622,976 |
| Interest (Annuity) | 11.3365 | $128,800.00 | $1,460,136 |
| Price of bonds | $3,083,112 | ||
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