Garcia Company issues 8.00%, 15-year bonds with a par value of $280,000 and semi

Question

Garcia Company issues 8.00%, 15-year bonds with a par value of $280,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6.00%, which implies a selling price of 119 5/9.

Confirm that the bonds’ selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round your other final answers to nearest whole dollar amount.)

Par Value x Price = Selling Price $280,000 119 5/9 = $334,768 Cash Flow Table Value Present Value $280,000 par (maturity) value $11,200 interest payment Price of Bond Difference due to rounding of table values

Explanation / Answer

0.4120

(pvif 3%,30yrs)

19.6004

(pvifa3%,30yrs)

Part value x price = selling price 280000 119 5/9 = 334768 Cash flow table value Present value 280000 par (maturity) value

0.4120

(pvif 3%,30yrs)

115360 11200 interest payment

19.6004

(pvifa3%,30yrs)

219524 Price of bond 334884 Difference due to rounding of table values 116

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