James Corporation is planning to issue bonds with a face value of $507,500 and a
ID: 2586807 • Letter: J
Question
James Corporation is planning to issue bonds with a face value of $507,500 and a coupon rate of 6 percent. The bonds mature in 10 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.)
Compute the issue (sale) price on January 1 of this year for each of the following independent cases:
Case A: Market interest rate (annual): 4 percent.
Case B: Market interest rate (annual): 6 percent.
Case C: Market interest rate (annual): 8.5 percent.
Future Value of $1 Periods 1.02000 1.03030 1.09273 1.05101 1.20210 1.33823 1.40255 1.06152 1.26532 1.29395 1.34247 1.33824 1.51621 1.79085 1.24337 1.26824 1.29361 1.49923 1.12683 2.25219 2.40985 1.42576 12 13 14 15 16 17 1.88565 1.97993 1.66507 2.13293 .14947 1.34587 1.73709 2.39656 1.87298 1.94790 2.02582 1.94633 2.02905 1.40024 1.65285 1.70243 2.29202 2.40662 2.52695 2.69277 2.85434 3.02560 3.37993 2.20519 2.08815 20 25 30 2.09378 2.42726 2.83075 5.42743 .61226 1.28243 2.66584 3.38635 1.34785 3.24340 5.74349 Periods 1.09000 1.56250 1.95313 1.21000 1.23210 1.27690 1.29960 1.32250 1.72800 2.07360 2.48832 1.33100 1.52088 1.51807 1.68506 1.63047 1.58687 2.31306 2.07616 2.35261 2.65844 3.00404 4.76837 5.96046 1.85093 3.05902 2.17189 2.36736 2.77308 2.15892 2.83942 2.85312 3.83586 4.22623 7.43008 3.49845 3.88328 12 3.89598 5.35025 4.55192 18.18989 22.73737 3.06580 3.45227 3.79750 13 10.69932 12.83918 15.40702 18.48843 35.52714 5.53475 6.25427 7.07571 15 3.42594 17 4.32763 7.98608 9.02427 10.19742 11.52309 21.23054 44.40892 22.18611 26.62333 5.55992 6.11591 7.68997 8.61276 9.64629 10.57517 12.05569 13.74349 3.99602 19 69.38894 4.66096 6.84848 0.06266 13.26768 17.44940 22.89230 29.95992 39.11590 50.95016 8.06231 13.58546 8.62308 10.83471 95.39622 237.37631 264.69780 807.79357 30 66.21177Explanation / Answer
A B C Semiannual interest 507500*.06*6/12=15225 15225 15225 semiannual months 10*2=20 20 20 semiannual yield 4*6/12=2% 6*6/12=3% 8.5*6/12=4.25% Issue price [PVA2%,20*Interest]+[PVF2%,20*Face value] [PVA3%,20*Interest]+[PVF3%,20*Face value] [PVA4.25%,20*Interest]+[PVF4.25%,20*Face value] [16.35143*15225]+[.67297*507500] [14.87747*15225]+[.55368*507500] [13.29437*15225]+[.43499*507500] 248950.52+ 341532.28 226507.48+ 280992.6 202406.78+ 220757.43 590,483 507500 423164
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