1) Desmond Corp. purchased 5, $1,000, 55% bonds of Geotherm Corporation when the
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Question
1)
Desmond Corp. purchased 5, $1,000, 55% bonds of Geotherm Corporation when the market rate of interest was 14%. Interest is paid semiannually on the bonds, and the bonds will mature in four years. Using the PV function in Excel @, compute the price Desmond paid (the present value) on the bond investment.
(Assume that all payments of interest and principal occur at the end of the period. Round your answer to the nearest cent.)
Desmond paid $ on the bond investment.
2)
Hodson Corp. purchased 10, $1,000, 4% bonds of Power Source Corporation when the market rate of interest was 8%. Interest is paid semiannually on the bonds, and the bonds will mature in six years.
Using the PV function in excel @, compute the price Hodson paid (the present value) on the bond investment.
(Assume that all payments of interest and principal occur at the end of the period. Round your answer to the nearest cent.)
Hodson paid $---- on the bond investment.?
Explanation / Answer
Answer 1. Table Value Based on n= 8 (4 Years X 2) i= 7% (14% / 2) Cash Flow Amount Present Value Interest - $1,000 X 55% X 6/12 275 1,642.11 ($275 X 5.97130) Principal 1,000 582.01 ($1,000 X 0.58201) Issue Price of Bond 2,224.12 Premium on issue of Bond 1,224.12 Desmond will pay for 5 Bonds = $2,224.12 X 5 Nos Desmond will pay for 5 Bonds = $11,120.60 (approx.) Answer 2. Table Value Based on n= 12 (6 Years X 2) i= 4% (8% / 2) Cash Flow Amount Present Value Interest - $1,000 X 4% X 6/12 20 187.70 ($20 X 9.38507) Principal 1,000 624.60 ($1,000 X 0.62460) Price of Bonds 812.30 Discount on issue of Bonds 187.70 Hodson Corp. will pay for 10 Bonds = $812.30 X 10 Nos Hodson Corp. will pay for 10 Bonds = $8,123 (Approx.)
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