On January 2, 2010, McGowan Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent. The bonds were issued to yield a market interest rate of 9 percent. Interest is payable annually on January 2. In calculating the present value of the bond issue of January 2, 2010, the

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The present value of the bond issue will be calculated using the market interest rate of 9 percent for both the face amount and the periodic interest payments. This is because the market rate is the rate that investors require for lending money, and it is the rate that determines the price of the bond. The face interest rate of 8 percent is only used to determine the amount of periodic interest payments that need to be made to the bondholders.

On January 2, 2010, McGowan Corporation Issued 20-Year Bonds Payable