Question

James Corporation is planning to issue bonds with a face value of $500,000 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.)

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.

Answer 1

Answer:

Case A $581,757.17  

Case B $500,000.00  

Case C $416,910.21  

Explanation:

Current price of a bond

The market price of a bond can be computed using the pv formula in excel, which is given as :

=pv(rate,nper,pmt,fv)

Where rate is the yield to maturity on the bond divided by 2 since the bond in question is semi-annual interest paying bond i.e

Case A 4%/2=2%

Case B 6%/2=3%

Case C 8.5%/2=4.25%

The nper is the time to maturity of the bond multiplied by 2 for the same reason cited for yield to maturity  i.e 10 years *2=20

The pmt is the semi-annual coupon interest payable by the bond i.e 6%/2*$500,000=$15,000

The fv is the future value of the bond given as $500,000

Case A

=-pv(2%,20,15000,500000)

Pv= 581,757.17  

Case B

=-pv(3%,20,15000,500000)

PV=$500,000.00  

Case C

=-pv(4.25%,20,15000,500000)

PV=$416,910.21  

Answer 2

Answer:

Bonds are the financial instruments used for the purpose of investing funds for safer returns in the future, along with the fixed rate of return earned each year.

Explanation:

The issue or sale price of the bonds as of January 1 for each of the independent cases is computed with the help of the following formula:

$\begin{aligned}\text{Present Value}&=\text{Future Value}\times\frac{1}{(1+r)^n}\end{aligned}$

The issue price is computed below as given in the tables.

It can be calculated either by using the calculator or the excel sheet formula.

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https://brainly.com/question/14599790?referrer=searchResults