On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables:
$\begin{array}{llr}
\text { Present value of an annuity for 10 periods at 3 \%} &8.5302\
\text { Present value of an annuity for 10 periods at 4 \% } &8.1109\
\text { Present value of 1 due in 10 periods at 3 \% } &0.7441\
\text { Present value of 1 due in 10 periods at 4 \% } &0.6756\
\end{array}$

What is the issue (selling)price of the bond?

Question

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables:
$\begin{array}{llr}
  \text {  Present value of an annuity for 10 periods at 3 \%} &8.5302\
 \text {  Present value of an annuity for 10 periods at  4 \% } &8.1109\
 \text { Present value of 1 due in 10 periods at  3 \%  } &0.7441\
 \text { Present value of 1 due in 10 periods at  4 \%  } &0.6756\
\end{array}$

What is the issue (selling)price of the bond?

Quizplus · Accepted Answer

The bond's issue price is calculated by finding the present value of the interest payments and the principal. The semiannual market rate is 3% (6% annual rate divided by 2). The present value of the interest annuity is $12,000 (8% of $300,000 divided by 2) times 8.5302, and the present value of the principal is $300,000 times 0.7441. Adding these gives the issue price of $325,592.

On January 1,a Company Issues 8%,5-Year,$300,000 Bonds That Pay Interest