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19 June, 01:27

LaTanya Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 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)

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) : 8 percent.

b. Case B: Market interest rate (annual) : 6 percent.

c. Case C: Market interest rate (annual) : 9 percent.

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  1. 19 June, 05:12
    0
    Case A:$100,000

    Case B:$111,164.76

    Case C:$94,967.05

    Explanation:

    The issue price of the bond can be computed using the excel pv formula stated below:

    =-pv (rate, nper, pmt, fv)

    Case A:

    Rate is the market interest rate of 8%

    nper is the number of coupon interest payable by the bond which is 7

    pmt is the annual coupon interest of $8,000 (8%*$100,000)

    fv is the face value of $100,000

    =-pv (8%,7,8000,100000) = $100,000

    Case B:

    Rate is the market interest rate of 6%

    nper is the number of coupon interest payable by the bond which is 7

    pmt is the annual coupon interest of $8,000 (8%*$100,000)

    fv is the face value of $100,000

    =-pv (6%,7,8000,100000) = $111,164.76

    Case C:

    Rate is the market interest rate of 9%

    nper is the number of coupon interest payable by the bond which is 7

    pmt is the annual coupon interest of $8,000 (8%*$100,000)

    fv is the face value of $100,000

    =-pv (9%,7,8000,100000) = $94,967.05
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