QS 14-5A Computing bond price LO C2 Garcia Company issues 8.00%, 15-year bonds w

Question

QS 14-5A Computing bond price LO C2 Garcia Company issues 8.00%, 15-year bonds with a par value of $340,000 and semiannual Interest payments. On the issue date. annual market rate for these bonds is 6.00%, which Implies a selling price of 119 112. Confirm that the bonds' selling price is approximately correct. Use present value Table B1 and Table B.3 In Appendix B. (Round all table values to 4 declmal places, and use the rounded table values In ceiculetions. Round your other finel answers to nearest whole dollar amount.) Par Value x Price 119 1/2 Table Value Selling Price 340,000 - S406.300 Cash Flow $340,000 par (maturity) value $13.600 interest payment Price of Bond Difference due to rounding of table values Present Value

Explanation / Answer

Note :

Present value of bonds with semiannual interest

= Semiannual interest payment * PVIFA (R /2 , n*2) + Maturity value *  PVIF(R /2 , n*2)

where , R/2 = Market rate / 2 = 6 /2 = 3 % , n * 2 = Bonds life * 2 = 15 * 2 = 30 years

Par Value * Price = Selling Price $340,000 119 1/2 = $406,300 Cash Flow Table Value Present Value $340,000 par (maturity) value 0.4120 140,080 $13,600 interest payment 19.6004 266,565 Price of Bond $406,645 Difference due to rounding of table values

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