LaTanya Corporation is planning to issue bonds with a face value of $102,500 and

Question

LaTanya Corporation is planning to issue bonds with a face value of $102,500 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on 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): 6 percent. Issue price b. Case B: Market interest rate (annual): 4 percent. Issue price c. Case C: Market interest rate (annual): 7 percent. Issue price

Explanation / Answer

Face value=$1,02,500

Coupon rate=6%

Period =7years

A.market rate=6%

r=0.06 and n=7

Present value of principal=$102500*(6%,7)=$102500*0.665=$68162.5

Interest value of principal=$102500*6%=$6150

Present value of interest payment=$102500*0.06*5.582=$34329

Issue price=$34329+$68162.5=$102491.8

B.if market interest rate is 4%

Issue price

Present value of principal=$102500*0.760=$77,900

Present value of interest payment=$102500=$36912

Issue price=$77900+$36912=$114812

If market price rate=7%

Present value of principal=$102500*0.623=$63857

Present value of interest=$102500*0.06*5.389=33142.35

Issue price=$33142.35+$63857=$96999.35

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