A company issues 6%, 5 year bonds with a par value of $800,000 and semiannual interest payments. On the issue date, the annual market rate of interest is 8%. Compute the issue (selling) price of the bonds. The following information is taken from present value tables:Present value of an annuity (series of payments) for 10 periods at 3%8.5302Present value of an annuity (series of payments) for 10 periods at 4%8.1109Present value of 1 (single sum) due in 10 periods at 3%0.7441Present value of 1 (single sum) due in 10 periods at 4%0.6756
What will be an ideal response?
| Present value of principal | $800,000 * 0.6756 = $540,480 |
| Present value of interest | ($800,000 * .06 * 1/2) * 8.1109 = 94,662 |
| Issue (selling) price of bonds | $735,142 |
Business
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