Homework SourseGarcia Company issues 800 15year bonds with a par value of 2
Garcia Company issues 8.00%, 15-year bonds with a par value of $280,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6.00%, which implies a selling price of 119 5/9.
Confirm that the bonds’ selling price is approximately correct. Use present value Table B.1 and Table B.3 in Appendix B. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round your other final answers to nearest whole dollar amount.)
|
Solution
0.4120
(pvif 3%,30yrs)
19.6004
(pvifa3%,30yrs)
| Part value | x price | = | selling price |
| 280000 | 119 5/9 | = | 334768 |
| Cash flow | table value | Present value | |
| 280000 par (maturity) value | 0.4120 (pvif 3%,30yrs) | 115360 | |
| 11200 interest payment | 19.6004 (pvifa3%,30yrs) | 219524 | |
| Price of bond | 334884 | ||
| Difference due to rounding of table values | 116 |
