Sand Explorers issues bonds due in 12 years with a stated interest rate of 8% and a face value of $270,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. Using present value tables, calculate the issue price of the bonds. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Market Value of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Price of the bond is calculated by following formula:

According to given data

Coupon payment = C = $270,000 x 8% = $21600 annually = $10800 semiannually

Number of periods = n = 2 x 24 years = 24 periods

Discount rate = 7% annual = 3.5%

There are two cash flows associated with this bond, first is 24 coupon annuity payments which can be discounted by using annuity factor at 3.5 %. Second is the is maturity payment which is discounted using simple discount factor at 3.5%.

Issue Price of Bond = ( Coupon Payment x annuity factor ) + ( Maturity Payment x Simple discount factor )

Issue Price of Bond = ( $10,800 x 16.058 ) + ( $270,000 x 0.438 )

Issue Price of Bond = $173,426.4 + $118,260

Issue Price of Bond = $291,686.4

Discount Table is attached in MS Excel File format Please find it.