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23 July, 17:39

James Corporation is planning to issue bonds with a face value of $505,500 and a coupon rate of 6 percent. The bonds mature in 7 years and pay interest semiannually every June 30 and 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.)

Compute the issue (sale) price on January 1 of this year for each of the following independent cases:

Case A: Market interest rate (annual) : 4 percent.

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

Case C: Market interest rate (annual) : 8.5 percent.

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  1. 23 July, 18:58
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    4%=$566,697.09

    6%=$505,500

    8.5%=$ 439,842.50

    Explanation:

    The issue price of the bond can be computed using the pv formula in excel spreadsheet as below:

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

    the rate is the market of 4% divided by 2

    nper is the number of semiannual interest the bonds would pay which is 7 years multiplied by 2 i. e 14

    pmt is the semiannual coupon interest on the bond, which is $505,500*6%*6/12=$15165

    fv is the face value repayable on redemption which is $505,500

    for market rate of 4%

    =-pv (2%,14,15165,505500) = $566,697.09

    for market rate of 6%

    =-pv (3%,14,15165,505500) = $ 505,500.00

    for market interest of 8.5%

    =-pv (4.25%,14,15165,505500) = $ 439,842.50
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