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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
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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### 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.
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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