Question

Enviro Company issues 8%, 10-year bonds with a par value of $280,000 and semiannual interest payments....

Enviro Company issues 8%, 10-year bonds with a par value of $280,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 1/2.

Par value x Price = Selling Price
87 1/2
Cash Flow Table Value Present Value
280 000 par (maturity) value
11 200$ interest payment
Price of bond
Difference due to rounding of table values
0 0
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Answer #1
Par value price selling price
280,000 87 1/2 245,000
Cash flow Table value present value
280000 maturity value 0.3769 105,532
11200 interest payment 12.4622 139,576.64
Price of bond 245,108.64
Difference due to rounding off 108.64

Note: since interest payments are semi annual, relevant factors are PVF(5%, 20 periods) and PVAF(5%, 20 periods)

Semi annual market rate =10%/2 =5%

Number of semi annual periods = 10*2 = 20

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