Question

LaTanya Corporation is planning to issue bonds with a face value of $104,000 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on 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 (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 6 percent. b. Case B: Market interest rate (annual): 4 percent. c. Case C: Market interest rate (annual): 7 percent.

Answer 1

Issue (sale) price on January 1 of this year for each of the following independent cases is as calculated below:

a. Case A: Market interest rate (annual): 6 percent

Table value are based on:
n= 7
i= 6%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.6651	104,000	69,166
Interest (annuity)	5.5824	6,240	34,834
Issue Price			104,000

b. Case B: Market interest rate (annual): 4 percent

Table value are based on:
n= 7
i= 4%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.7599	104,000	79,031
Interest (annuity)	6.0021	6,240	37,453
Issue Price			116,484

c. Case C: Market interest rate (annual): 7 percent.

Table value are based on:
n= 7
i= 7%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.6227	104,000	64,766
Interest (annuity)	5.3893	6,240	33,629
Issue Price			98,395