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Problem - At the beginning of current year, Synthesis Company purchased a ten-year bond with a face amount of P5,000,000. The stated interest rate is 8% per year payable semi-annually June 30 and December 31. The bonds were acquired to yield 10%.
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 20 periods at 5% .377
Present value of an annuity of 1 for 10 periods at 10% 6.145
Present value of an annuity of 1 for 20 period at 5% 12.462
Required -
1. Compute the market price of the bonds.
2. Without computing first the answer, what is the best indicator to become a basis that the market price is at premium or discount when sold? Explain.
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