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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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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