On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with

Question

On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with a face amount of $23 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31 (EVof 1 PA of $1. EVA of $1, PVAof$1 AADof $1 and P VAD of $1) (Use appropriate factor(s) from the tables provided.) Required Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.) Price of the bonds

Explanation / Answer

Computation of price of   Bond as on 01st Jan 2018 (in Million) Par Value of Bond $23.00 Coupon Interest Rate P.a. 10% Market Effective Interest Rate p.a. 12% Semiannual Coupon Interest rate 5% Semi Annual Interest Payment $1.15 Maturity in 10 Year Cumm PVAF @6%% for 20 Year 11.47 Present Value of Interest Payment ($1.15*11.47) $13.19 Present Value of Bond Par Value at the end of 10 year (b) $7.17 (23*0.3118) Total present Value of Bond (a+b) $20.36 Hence Price of Bond on 1St Jan2018 will be $20.36 Million

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