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Scottie Adams Bird Supplies issued 14% bonds, dated January 1, with a face amount of $140,000 on January 1, 2021. The bonds mature in 2031 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31. What is the price of the bonds at January 1, 2021

Respuesta :

Tundexi

Answer:

$156,058

Explanation:

Missing word "PV of annuity due of $1: n = 20; i = 6% is 12.15812 *PV of ordinary annuity of $1: n = 20; i = 6% is 11.46992 **PV of $1: n = 20; i = 6% is 0.31180"

n = 20, i = 6%

Periodic interest payments of the bonds =  Face value of the bonds * Stated rate of interest * 6 months/12 months

= $140,000 * 14% * 6 months/12 months

= $9,800

Cash Flow                           Amount        Table Value   Present Value

Interest payments              $9,800           11.46992           $112,405

Maturity Value                    $140,000        0.31180             $43,653

Issue Price of the bonds at January 1, 2021                    $156,058

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