When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was _____. Use the following table, if needed.
$$\begin{array}{l}
\text { Present value of } \$ 1 \text { at Compound Interest }\
\begin{array} { l c c c c c }
\text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% & 12 \% \
1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 & 0.89286 \
2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 & 0.79719 \
3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 & 0.71178 \
4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 & 0.63552 \
5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 & 0.56743 \
6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 & 0.50663 \
7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 & 0.45235 \
8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 & 0.40388 \
9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 & 0.36061 \
10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 & 0.32197
\end{array}
\end{array}$$
A) $321,970
B) $1,000,000
C) $943,494
D) $621,524

Question

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was _____. Use the following table, if needed.
 $$\begin{array}{l}
\text { Present value of } \$ 1 \text { at Compound Interest }\
\begin{array} { l c c c c c } 
\text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% & 12 \% \
1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 & 0.89286 \
2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 & 0.79719 \
3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 & 0.71178 \
4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 & 0.63552 \
5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 & 0.56743 \
6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 & 0.50663 \
7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 & 0.45235 \
8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 & 0.40388 \
9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 & 0.36061 \
10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 & 0.32197
\end{array}
\end{array}$$
A) $321,970
B) $1,000,000
C) $943,494
D) $621,524

Quizplus · Accepted Answer

To find the selling price of the bonds, we calculate the present value of the bond's cash flows, which include the annual interest payments and the principal repayment at maturity. The annual interest payment is $1,000,000 * 11% = $110,000. The present value of these interest payments for 10 years at the market rate of 12% is $110,000 * 5.65022 (the present value of an annuity of $1 for 10 periods at 12%, not directly given but can be calculated or found in financial tables). The present value of the principal ($1,000,000) at the end of 10 years at 12% is $1,000,000 * 0.32197 (from the table). Adding these two present values gives the selling price of the bonds. The calculation is approximately $110,000 * 5.65022 + $1,000,000 * 0.32197 ≈ $620,524 + $321,970 = $942,494, which rounds to $943,494, making option C correct.

When the Market Rate of Interest Was 12%, Halprin Corporation