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Self-Test Bonds SOLUTION

# Self-Test Bonds SOLUTION - Self-Test Selling Price of a...

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Self-Test -- Selling Price of a Bond \$180,000 A. Selling Price of the Bond if Payment Amt. Table Factor Present Value for 10 periods @ 10% (effective annual rate) \$180,000 6.14457 \$1,106,022.60 Present Value of \$2,000,000 Maturity Pmt. due in 10 periods @ 10% (effective annual rate) \$2,000,000 0.38554 \$771,080.00 Selling Price of the Bond \$1,877,102.60 B. Selling Price of the Bond if C. Selling Price of the Bond if Payment Amt. Table Factor Present Value for 10 periods @ 8% (effective annual rate) \$180,000 6.71008 \$1,207,814.40 Present Value of \$2,000,000 Maturity Pmt. due in 10 periods @ 8% (effective annual rate) \$2,000,000 0.46319 \$926,380.00 Selling Price of the Bond \$2,134,194.40 Annual Cash Interest Payments: \$2,000,000 x 9% (stated annual rate) = Effective Annual Interest Rate = 10% Present Value of \$180,000 Interest Pmts. sold at a discount ( effective rate > stated rate ) Effective Annual Interest Rate = 9% No calculations required -- Effective Interest Rate = Stated Interest Rate

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Self-Test Bonds SOLUTION - Self-Test Selling Price of a...

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