Question

A company issued 6%, 10-year bonds with a face amount of $90 million. The market yield for bonds of similar risk and maturity is 7%. Interest is paid semiannually. At what price did the bonds sell? (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. Enter your answers in whole dollars. Round final answers to the nearest whole dollar.)

Answer 1

The bonds sold at: $122,106,600 dollars

Step-by-step explanation:

We will calculate the present value of the coupon payment and the maturirty at market rate of 7%

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C 2.7(90 millions x 6% / 2 payment per year)

time 20 10 years and 2 payment per year

discounted at market rate: 7% divide by 2 payment per year: 0.035

`2.7 * (1-(1+0.035)^(-20) )/(0.035) = PV\\`

PV 76.3551

Then present value of maturity:

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity 90.00

time 10 years

rate 0.07

`(90)/((1 + 0.07)^(10) ) = PV`

PV 45.75

PV coupon $76.3551

PV maturity $45.7514

Total $122.1066