James Corporation is planning to issue bonds with a face value of $504,500 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31.

James Corporation is planning to issue bonds with a face value of $504,500 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)

Required:

Compute the issue (sale) price on January 1 of this year for each of the following independent cases:

  

a. Case A: Market interest rate (annual): 4 percent.

Here

Explanation:

a.

CASE A:

$504,500 × .67297	$	339,513
$15,135* × 16.35143		247,479
Issue price (market rate less than coupon rate)	$	586,992	**(at a premium)

*$504,500 × .06 × ½

**Using Excel or a financial calculator results in a present value of $586,992 (rounded).

 b.

CASE B:

$504,500 × .55368	$	279,332
$15,135* × 14.87747		225,171
Issue price (market rate same as coupon rate)	$	504,503	**(at par)

*$504,500 × .06 × ½  

**Using Excel or a financial calculator results in a present value of $504,500.

c.

CASE C:

$504,500 × .43499	$	219,452
$15,135* × 13.29437		201,210
Issue price (market rate greater than coupon rate)	$	420,662	**(at a discount)

*$504,500 × .06 × ½  

**Using Excel or a financial calculator results in a present value of $420,662 (rounded).