On January 1,2019,Broker Corp.issued $3,000,000 par value 12%,10-year bonds which pay interest each December 31.If the market rate of interest was 14%,what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is 0.3220 and at 14% is 0.2697.The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161. )
A)$3,339,084.
B)$2,843,172.
C)$3,000,000.
D)$2,686,896.

Question

Quizplus · Accepted Answer

Step 1: Calculate the present value (PV) of the principal amount:
PV of principal = $3,000,000 x 0.2697 = $809,100

Step 2: Calculate the present value (PV) of the interest payments for 10 years:
PV of annuity = $360,000 x 5.2161 = $1,876,596

Step 3: Add PV of the principal and PV of the annuity to get the issue price:
Issue price = PV of principal + PV of annuity = $809,100 + $1,876,596 = $2,685,696

Therefore, the issue price of the bonds was $2,686,896. Option D is the correct answer.