Question

A company issued 5%, 10-year bonds with a face amount of $74 million. The market yield for bonds of similar risk and maturity is 6%. 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)

Answer 1

The bonds sold for approximately $42.553 million.

Step-by-step explanation:

The price at which the bonds sold can be calculated using the present value formula. The formula for calculating the present value of a bond is:

PV = C * PVAD + FV * PVAD

In this case, the face value (FV) is $74 million, the coupon rate is 5%, the market yield is 6%, and the number of semiannual periods is 20 (10 years * 2). Plugging in these values into the formula, the price of the bonds can be calculated as follows:

PV = $37 million * 0.565 + $74 million * 0.292

PV = $20.945 million + $21.608 million

PV = $42.553 million

Therefore, the bonds sold for approximately $42.553 million.