Determine the price of a $1 million bond issue under each of the following independent assumptions: (Use

Determine the price of a $1 million bond issue under each of the following independent assumptions: (Use

Table 2 and Table 4). (Round "PV Factor" to 5 decimal places, intermediate and final answers to the

nearest whole dollar amount. Omit the "$" sign in your response.)

Maturity Interest Paid Stated Rate

Effective

(Market)

Rate

Price

1. 10 years annually 9% 11% $ 882,211 ± .1%

2. 10 years semiannually 9% 11% $ 880,497 ± .1%

3. 10 years semiannually 11% 9% $ 1,130,077 ± .01%

4. 20 years semiannually 11% 9% $ 1,184,017 ± .01%

5. 20 years semiannually 11% 11% $ 999,997 ± .1%

Explanation:

1.

Maturity Interest paid Stated rate Effective (market) rate

10 years annually 9% 11%

Interest $ 90,000 ¥ × 5.88923* = $ 530,031

Principal $ 1,000,000 × .35218** = 352,180

Present value (price) of the bonds $ 882,211

¥ 9% × $1,000,000

* present value of an ordinary annuity of $1: n = 10, i = 11% (Table 4)

** present value of $1: n = 10, i = 11% (Table 2)

2.

Maturity Interest paid Stated rate Effective (market) rate

20 years semiannually 9% 11%

Interest $ 45,000 ¥ × 11.95038* = $ 537,767

Principal $ 1,000,000 × .34273** = 342,730

Present value (price) of the bonds $ 880,497

¥ 4.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 20, i = 5.5% (Table 4)

** present value of $1: n = 20, i = 5.5% (Table 2)

3.

Maturity Interest paid Stated rate Effective (market) rate

20 years semiannually 11% 9%

Interest $ 55,000 ¥ × 13.00794* = $ 715,437

Principal $ 1,000,000 × .41464** = 414,640

Present value (price) of the bonds $ 1,130,077

¥ 5.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 20, i = 4.5% (Table 4)

** present value of $1: n = 20, i = 4.5% (Table 2)

4.

Maturity Interest paid Stated rate Effective (market) rate

40 years semiannually 11% 9%

Interest $ 55,000 ¥ × 18.40158* = $ 1,012,087

Principal $ 1,000,000 × .17193** = 171,930

Present value (price) of the bonds $ 1,184,017

¥ 5.5% x $1,000,000

* present value of an ordinary annuity of $1: n = 40, i = 4.5% (Table 4)

** present value of $1: n = 40, i = 4.5% (Table 2)

5.

Maturity Interest paid Stated rate Effective (market) rate

40 years semiannually 11% 11%

Interest $ 55,000 ¥ × 16.04612* = $ 882,537

Principal $ 1,000,000 × .11746** = 117,460

Present value (price) of the bonds $ 999,997

actually, $1,000,000 if PV table factors were not rounded

¥ 5.5% × $1,000,000

* present value of an ordinary annuity of $1: n = 40, i = 5.5% (Table 4)

** present value of $1: n = 40, i = 5.5% (Table 2)