Part 1 On April 1, 2023, ET Inc. has available for issue $332,000 bonds due in four years. Interest at the rate of 4.0% is to be paid quarteri Calculate the issue price if the market interest rate is: (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) a. b. C. Market Interest Rate 5% Part 2 a. b. C. 3% On Oct ber ET Inc. has available for issue a $314,000 bond due in eight years. Interest at the rate of 3.5% is to be paid semiannua Calculate the issue price if the market interest rate is: (Do not round intermediate calculations. Round the final answers to 2 decir places.) Issue Price of the Bonds Market Interest Issue Price of the Bonds Rate 2.5% 3.5% 4.25%
Part 1 On April 1, 2023, ET Inc. has available for issue $332,000 bonds due in four years. Interest at the rate of 4.0% is to be paid quarteri Calculate the issue price if the market interest rate is: (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) a. b. C. Market Interest Rate 5% Part 2 a. b. C. 3% On Oct ber ET Inc. has available for issue a $314,000 bond due in eight years. Interest at the rate of 3.5% is to be paid semiannua Calculate the issue price if the market interest rate is: (Do not round intermediate calculations. Round the final answers to 2 decir places.) Issue Price of the Bonds Market Interest Issue Price of the Bonds Rate 2.5% 3.5% 4.25%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Calculating Bond Issue Prices
#### Part 1
**Scenario:**
On April 1, 2023, ET Inc. has a bond issue of $332,000 due in four years. Interest at the rate of 4.0% is to be paid quarterly. Calculate the issue price if the market interest rate is as follows:
- Do not round intermediate calculations.
- Round the final answers to the nearest whole dollar.
**Table:**
| Market Interest Rate | Issue Price of the Bonds |
|----------------------|--------------------------|
| a. 5% | |
| b. 4% | |
| c. 3% | |
#### Part 2
**Scenario:**
On October 1, ET Inc. has a bond issue of $314,000 due in eight years. Interest at the rate of 3.5% is to be paid semiannually. Calculate the issue price if the market interest rate is as follows:
- Do not round intermediate calculations.
- Round the final answers to 2 decimal places.
**Table:**
| Market Interest Rate | Issue Price of the Bonds |
|----------------------|--------------------------|
| a. 2.5% | |
| b. 3.5% | |
| c. 4.25% | |
**Instructions:**
1. **Determine Payment Amounts:**
- For Part 1 (quarterly payments), calculate the interest payment per quarter by dividing the annual interest rate by 4.
- For Part 2 (semiannual payments), calculate the interest payment per half-year by dividing the annual interest rate by 2.
2. **Calculate Present Value:**
- Use the market interest rate to discount the future payments and the face value of the bond.
3. **Round Appropriately:**
- Ensure intermediate calculations are not rounded.
- For Part 1, round the final answer to the nearest whole dollar.
- For Part 2, round the final answer to 2 decimal places.
This example teaches the concepts of bond pricing under different market conditions and the importance of accurate calculations.
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