Exercise 14-2 Determine the price of bonds in various situations [LO14-2] Comple

Question

Exercise 14-2 Determine the price of bonds in various situations [LO14-2] Complete the below table to calculate the price of a $1 million bond issue under each of the following independent assumptions (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): 1. Maturity 10 years, interest paid annually, stated rate 10%, effective (market) rate 12% 2. Maturity 10 years, interest paid semiannually, stated rate 10%, effective (market) rate 12% 3. Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 10% 4. Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 10% 5, Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%

Explanation / Answer

Sl.No. Bond Information Market Rate Present Value at markert rate Price of the bond Face value Term of bond(years) Interest rate Interest payment PV factor for face value PV factor for interest PV - Face Value PV - Interest 1 1000000 10 10% Annual 12% 0.322 5.65 322000 565000 887000 2 1000000 10 10% Semiannual 12% 0.322 11.47 322000 573500 895500 4 1000000 10 12% Semiannual 10% 0.3855 12.462 385500 747720 1133220 5 1000000 20 12% Semiannual 10% 0.1486 17.159 148600 1029540 1178140 6 1000000 20 12% Semiannual 12% 0.1037 15.0463 103700 902778 1006478

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