Homework Sourse1 Whiteside Corporation issues 503000 of 9 bonds due in 11 y
1. Whiteside Corporation issues $503,000 of 9% bonds, due in 11 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 12%.
Compute the issue price of the bonds. (Round answer to 0 decimal places, e.g. 38,548.)
Issue price of the bonds
2.
Whiteside Corporation issues $615,000 of 8% bonds, due in 11 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 12%.
Compute the issue price of the bonds. (Round answer to 0 decimal places, e.g. 38,548.)
| Issue price of the bonds |
Solution
Answer to Question No 1:
The issue price is the cash flow of the bond payments over the life of the bond plus the face value of the bond.
Present Value of Payments
Rate: 0.12 / 2 = 0.06
Nper: 11 x 2 = 22
Pmt: (503,000 x 0.09) / 2 = 22,635
= $272,561
Present Value of Face Value
Rate: 0.06
Nper: 22
Fv: 503,000
= $139,585
$272,561 + $139,585 = $412,146 issue price
*Note: I used Excel\'s PV function. If you\'re supposed to use factoring tables, your answer will be slightly different.
Answer to Question No 2:
The issue price is the cash flow of the bond payments over the life of the bond plus the face value of the bond.
Present Value of Payments
Rate: 0.12 / 2 = 0.06
Nper: 11 x 2 = 22
Pmt: (615,000 x 0.08) / 2 = 24,600
= $296,223
Present Value of Face Value
Rate: 0.06
Nper: 22
Fv: 615,000
= $170,666
$296,223 + $170,666 = $466,889 issue price
*Note: I used Excel\'s PV function. If you\'re supposed to use factoring tables, your answer will be slightly different.
