1 answer

Mountain Excursions issues bonds due in 12 years with a stated interest rate of 12% and...

Question:

Mountain Excursions issues bonds due in 12 years with a stated interest rate of 12% and a face value of $120,000. Interest payments are made semi-annually. The market rate for this type of bond is 13%. Using a financial calculator or Excel, calculate the issue price of the bonds.

A) 70,292

B) 112,806

C) 127,891

D) 120,000


Answers

Table values are based on:
Face Amount $120,000
Interest Payment $120,000*12%*6/12 =$7,200
Market Interest rate per period 6.50%
Cash Flow Table Value(PV of 6.5% for 24 period) Amount Present Value
PV of Interest 11.99074 $7,200 $86,333
PV of Principal 0.2206 $1,20,000 $26,472
PV of Bonds Payable(Issue Price) $1,12,805
So Option B is the answer
.

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