On January 1,2009,Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually.The following present value factors have been provided:

$$\begin{array}{ll }
\begin{array} { ll }
\text { Time Period } & \text { Interest } \
10 & 10 \% \
10 & 8 \% \
10 & 12 \%
\end{array}
\begin{array} { l l }
\text { PV of } \$ & \text { PV of an } \text { Annuity } \
.386 & 6.145 \
.463 & 6.710 \
.322 & 5.650
\end{array}
\end{array}$$
Calculate the issuance price if the market rate of interest is 12%.
A)$4,427,500
B)$4,477,500
C)$4,435,000
D)$5,000,000

Question

On January 1,2009,Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually.The following present value factors have been provided:

$$\begin{array}{ll }
\begin{array} { ll  } 
\text { Time Period } & \text { Interest } \
10 & 10 \% \
10 & 8 \% \
10 & 12 \%
\end{array}
\begin{array} { l l } 
\text { PV of } \$  & \text { PV of an } \text { Annuity } \
.386 & 6.145 \
.463 & 6.710 \
.322 & 5.650
\end{array}
\end{array}$$
 Calculate the issuance price if the market rate of interest is 12%.
A)$4,427,500
B)$4,477,500
C)$4,435,000
D)$5,000,000

Quizplus · Accepted Answer

The present value of the bonds is equal to the present value of the interest payments plus the present value of the principal payment. The present value of the interest payments is equal to the annual interest payment multiplied by the present value of an annuity factor for 10 years at 12%. The present value of the principal payment is equal to the face amount of the bonds multiplied by the present value of $1 factor for 10 years at 12%.The present value of the bonds is equal to:$5,000,000 x 0.322 + $500,000 x 5.650 = $4,435,000

On January 1,2009,Jason Company Issued $5 Million of 10-Year Bonds