fill the chart correctly C ezto.mheducation.com/hm.tpx Question 4(of 10) 4. QS 1

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fill the chart correctly

C ezto.mheducation.com/hm.tpx Question 4(of 10) 4. QS 10-3 Computing bond price P1 Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 Confirm that the bonds' selling price is approximately correct (within $100). Use the present value tables B.1 and B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations.) Par Value | # | Selling Price x Price 87 1/2 Table Value ash Flow $250,000 par (maturity) value $10,000 interest payment Price of Bond Difference due to rounding of table values Present Value 0 References eRonk R Resources O Type here to search

Explanation / Answer

Answer

---Note:

Market rate = 10%; Interest payable semi annually, hence rate considered below for Factor tables = 10% x 6/12 = 5%

Bond term = 10 years; semi annual payment = 2 payments each year = Total 20 payments.

Par Value

Price

Selling Price

[A]

[B]

[A x B]

$      250,000.00

87.5

$             218,750.00 [250000 x 87.5/100]

Cash Flow

Table Value

Present Value

[A]

[B]

[A x B]

$ 250000 par Value

0.3769 [PV $1 factor table for 5% for 20th period]

$               94,225.00

$ 10000 Interest Payment

12.4622 [PV Annuity factor table of $1 for 5% for 20th period]

$             124,622.00

Price of Bond

$             218,847.00

Difference due to rounding off

$                       97.00

Par Value

Price

Selling Price

[A]

[B]

[A x B]

$      250,000.00

87.5

$             218,750.00 [250000 x 87.5/100]

Cash Flow

Table Value

Present Value

[A]

[B]

[A x B]

$ 250000 par Value

0.3769 [PV $1 factor table for 5% for 20th period]

$               94,225.00

$ 10000 Interest Payment

12.4622 [PV Annuity factor table of $1 for 5% for 20th period]

$             124,622.00

Price of Bond

$             218,847.00

Difference due to rounding off

$                       97.00

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