James Corporation is planning to issue bonds with a face value of $501,000 and a

Question

James Corporation is planning to issue bonds with a face value of $501,000 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.)

Required:

Compute the issue (sale) price on January 1 of this year for each of the following independent cases:

a. Case A: Market interest rate (annual): 4 percent.

b. Case B: Market interest rate (annual): 6 percent.?

c. Case C: Market interest rate (annual): 8.5 percent.?

Explanation / Answer

Issue (sale) price - Case A: Market interest rate (annual): 4 percent

= $501000 x (PVF 2%, 14Years) + $15030 x (PVAF 2%, 14Year)

= ($501000 x 0.75788) + ($15030 x 12.10625)

= $561,655

Issue (sale) price - Case B: Market interest rate (annual): 6 percent

= $501000 x (PVF 3%, 14Years) + $15030 x (PVAF 3%, 14Year)

= ($501000 x 0.0.66112) + ($15030 x 11.29607)

= $5,01,000

Issue (sale) price - Case C: Market interest rate (annual): 8.50 percent

= $501000 x (PVF 4.25%, 14Years) + $15030 x (PVAF 4.25%, 14Year)

= ($501000 x 0.55839) + ($15030 x 10.39090)

= $ 435,929

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