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22 August, 16:38

ames Corporation is planning to issue bonds with a face value of $501,500 and a coupon rate of 6 percent. The bonds mature in 10 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.) Required: Compute the issue (sales) price on January 1 of this year for each of the following independent cases:

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  1. 22 August, 17:52
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    The independent cases not given in the question are:

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

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

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

    At 4% issue price is $583,502.44

    At 6% issue price is $501,500.00

    At 8% issue price is $433,344.51

    Explanation:

    The price of the bond can be computed using the pv value formula in excel.

    =pv (rate, nper, pmt, fv)

    rate is the market interest given in the three cases divided by since the bond is a semi-annual interest paying bond. for example 4%/2=2%

    nper is the time to maturity multiplied by 2 i. e 10*2=20

    pmt is the coupon interest receivable by investor semi-annually which is 6%/2*$501,500=$15045

    fv is the face value at $501,500

    at 4%

    =pv (2%,20,15045,501500)

    =$583,502.44

    at 6%

    =pv (3%,20,15045,501500)

    =$501,500.00

    At 8%

    =pv (4%,20,15045,501500)

    =$433,344.51
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