Question

Compute the selling price of 8%, 10-year bonds with a par value of $300,000 and semiannual interest payments. The annual market rate for these bonds is 10%. Use present value Table B.1 and Table B.3 in Appendix B. Note: Round all table values to 4 decimal places, and use the rounded table values in calculations.

Answer 1

To compute the selling price of 8%, 10-year bonds with semiannual interest payments, calculate the present value of future cash flows using the present value factors.

Step-by-step explanation:

To compute the selling price of 8%, 10-year bonds with a par value of $300,000 and semiannual interest payments, we need to calculate the present value of the bond's future cash flows. The bond pays semiannual interest, so we need to compute the present value of each interest payment and the principal repayment. Considering a market rate of 10%, we can refer to Table B.1 and Table B.3 in Appendix B to find the present value factors for each period.

Using the present value factors for a bond with a 10-year maturity and 5% semiannual interest rate, we can calculate the present value of each interest payment and the principal repayment. After finding the present values for each cash flow, we sum them up to get the selling price of the bonds.

In this case, the selling price would be the sum of the present values of the interest payments and the present value of the principal repayment.

Use Table B.1 and Table B.3 in Appendix B to find the present value factors for each period. Sum up the present values to get the selling price of the bonds.