On January 1, 2019, Haley Co. issued ten-year bonds with a face amount of €5,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:

Question

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To calculate the present value of the bonds, we need to use the present value factor for 10%, which is 0.62092. We multiply this factor by the face amount of €5,000,000 to get €3,104,600, which is the present value of the principal. To calculate the present value of the interest payments, we need to use the annuity present value factor for 10% with 10 periods, which is 6.14457. We multiply this factor by the annual interest payment of €400,000 (8% of face amount) to get €2,457,828. Adding the present value of the principal and the present value of the interest payments, we get €5,562,428, which is greater than the face amount of €5,000,000. Therefore, the bonds were priced at a premium, and the best choice is D, €4,388,000, which is the present value of the face amount at 10% discount rate.