Luna, Jon Vincent Nico M. Solved Problem
Engineering Economy/CPE-401
CHAPTER 4
1. A Corporation sold an issue of 20-year bonds, having a total face value of 10,000,000 for 9,500,000. The
bonds bear interest at 16%, p
...
Luna, Jon Vincent Nico M. Solved Problem
Engineering Economy/CPE-401
CHAPTER 4
1. A Corporation sold an issue of 20-year bonds, having a total face value of 10,000,000 for 9,500,000. The
bonds bear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring
the bond issue and will make semiannual deposit that will earn 12%, compounded semiannually. Compute the
annual cost for interest and redemption of these bonds.
Solution:
F=10,000,000 i = 12% = 6% r = 16% = 8%
2 2
Interest on the bond per period = Fr = (10,000,000)(0.16)= 1,600,000
A =10,000,000 = 64,615.36
(1+0.06)40-1
0.06
Total Annual Expense= 2(64,615.36)+1,600,000= 1,729,230.718
2. A company has issued 10-year bonds, with face value of 1,000,000 in 1,000 units. Interest at 16% is aid
quarterly. If an investor desires to earn 20% nominal interest on 100,000 worth of these bonds, what would the
selling rice have to be?
Solution:
C = 100,000 r = 16%/2 = 8% i= 20%/4 = 5%
Interest on the bond per period = Fr = (100,000)(0.04)= 4,000
P=Fr((1-(1+.05)-40/0.05) + C(1.05-40) = 82,840.91
3. A 1,500-bond which will mature in 10 years and with a bond rate of 15% payable annually is to be redeemed
at par at the end of this period. If it is sold now for 1,390, determine the yield at this price.
Given:
F = 1,500 N = 10 r = 15% P = 1,390
Solution:
P= Fr(1-(1+i)-10/i) + C(1+i)
1390 = 15009(0.15) (1-(1+i)-10/i) + 1500(1+i)
= 0.1655(100%) = 16.55%
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