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# Valuing Bonds Using Present Value

Please help! Using the attachments for detail, can you help me with this question and any on the attached JPG files?

Use the present value tables in the appendix (files attached) on the future value and present value tables to calculate the issue price of a \$600,000 bond issue in each of the following independent cases. Assume interest is paid semiannually.

a. A 10-year, 8 percent bond issue; the market interest rate is 10 percent.
b. A 10-year, 8 percent bond issue; the market interest rate is 6 percent.
c. A 10-year, 10 percent bond issue; the market interest rate is 8 percent.
d. A 20-year, 10 percent bond issue; the market interest rate is 12 percent.
e. A 20-year, 10 percent bond issue; the market interest rate is 6 percent.

#### Solution Preview

The price of the bond would be the present value of interest and principal.
a. A 10-year, 8 percent bond issue; the market interest rate is 10 percent.

The interest amount is 600,000X8%/2 = 24,000 for each semi annual period. Periods to maturity are 10X2=20. Principal amount is \$600,000 and the discounting rate is 10%/2=5%. Interest is an annuity and so we use the PVIFA table. For principal amount we use the PVIF table
Issue Price = 24,000 X PVIFA (20,5%) + 600,000 X PVIF (20,5%)
Issue price = 24,000X12.4622 + 600,000 X 0.3769
Issue Price = \$525,323.80

b. A 10-year, 8 percent bond issue; the market interest ...

#### Solution Summary

The solution explains how to calculate the price of bonds

\$2.19