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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.

Respuesta :

Answer:

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  

Case A: 4%= $566,697.09

Case B: 6%= $505,500

Case C: 8.5%= $439,842.50

Calculation of Interest rate

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

Then =-PV (rate,nper,pmt,fv)

After that, the rate is the market of 4% divided by 2

Then n-per is the number of semiannual interest the bonds would pay Now, 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 is =$15165

Then the f-v is the face value repayable on redemption which is $505,500

for a market rate of 4%

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

for a market rate of 6%

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

for market interest of 8.5%

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

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