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    Price of Bonds

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    On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

    Present value of an annuity for 10 periods at 3%.......8.5302
    Present value of an annuity for 10 periods at 4%.......8.1109
    Present value of 1 due in 10 periods at 3%...............0.7441
    Present value of 1 due in 10 periods at 4%...............0.6756

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    Solution Preview

    Par Value: $300,000
    Periods: 5*2 = 10
    Coupon Rate: 8%
    Coupon Payment: .08 x 300,000/2 = 12,000
    Market Interest Rate = 6% or 3% half yearly

    Price of ...

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    $2.19

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