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    ajone216's Avatar
    ajone216 Posts: 17, Reputation: 1
    New Member
    		  
    #1

    Nov 16, 2009, 03:09 PM
    Stocks and Issuances
    Tampa Company plans to issue $100,000 par value, 10 year bonds with a stated interest rate of 10%. Interest is paid annually.

    If, on the date of issuance, the market rate of interest is 8%, the price of the bonds might be?



    I have the answer, it's 113,550. I just don't understand how they come up with that answer.
    Thanks for the help.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
    Senior Member
    		  
    #2

    Nov 16, 2009, 03:40 PM
    If you'll present-value all of the bond's cash flows at the 8% market discount rate, you'll come up with that price. (Actually they must have done a bit o' rounding--or used a 'present value factor' table--because the answer's closer to 113,420.)
    ajone216's Avatar
    ajone216 Posts: 17, Reputation: 1
    New Member
    		  
    #3

    Nov 16, 2009, 04:53 PM

    I don't understand where to even start though. Could someone do the steps so I can see how to do it and then apply it to my other problems.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
    Uber Member
    		  
    #4

    Nov 17, 2009, 02:40 AM

    Please see these threads:

    https://www.askmehelpdesk.com/financ...ds-200150.html
    https://www.askmehelpdesk.com/financ...ce-199941.html
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