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Sagot :
Answer:
A. $107,005
B. $119,842
C. $101,228
Explanation:
Computation for the issue (sale) price on January 1 of this year
a. Case A: Market interest rate (annual): 6 percent
Table value are based on:
n= 7
i= 6%
Cash Flow Table Value Amount Present Value
Par (maturity value) 0.6651 $107,000 $71,166
Interest (annuity) 5.5824 6,420 35,839
($107,000*6%=$6,420)
Issue Price 107,005
Therefore The Issue Price for Case A is $107,005
b. Case B: Market interest rate (annual): 4 percent
Table value are based on:
n= 7
i= 4%
Cash Flow Table Value Amount Present Value
Par (maturity value) 0.7599 107,000 81,309
Interest (annuity) 6.0021 6,420 38,533
Issue Price $119,842
Therefore the Issue Price for Case B is $119,842
c. Case C: Market interest rate (annual): 7 percent.
Table value are based on:
n= 7
i= 7%
Cash Flow Table Value Amount Present Value
Par (maturity value) 0.6227 107,000 66,629
Interest (annuity) 5.3893 6,420 34,599
Issue Price $101,228
Therefore The Issue Price for Case C is $101,228
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