A 1,000 par value nôn-callab has a maturity date of November 1, 2023. On May 1, 2016, this bond was purchased to yield 8.00% convertible semi-annually. ond pays What was the market price at which the bond was purchased on May 1, 2016? A. 815 B. 870 C. 889 D.893 E.894

A 1,000 par value nôn-callab has a maturity date of November 1, 2023. On May 1, 2016, this bond was purchased to yield 8.00% convertible semi-annually. ond pays What was the market price at which the bond was purchased on May 1, 2016? A. 815 B. 870 C. 889 D.893 E.894

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

please solve this problem without using Excel and show all steps.

A 1,000 par value non-callable bond pays semi-annual coupons at a 6% annual coupon rate and
has a maturity date of November 1, 2023. On May 1, 2016, this bond was purchased to yield
8.00% convertible semi-annually.
What was the market price at which the bond was purchased on May 1, 2016?
A. 815
B. 870
C. 889
D.893
E.894

Expert Solution

Step 1: Calculating bond present value or purchase price

Using the formula :Bond Price = C* (1-(1+r)^-n/r ) + F/(1+r)ⁿ

where, C = Coupon payment

r = yield

F=face value

n =time

Step by step

Solved in 2 steps

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