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Kelly Industries issued 12% bonds, dated January 1, with a face value of $100,000 on January 1, 2021. The bonds mature in 203

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Answer #1

Answer

  • Correct Answer = Option #3: $ 94,491

Amount

PV factor

Present Values

PV of Face Value of

$                       100,000.00

0.28380

$                       28,380.00

PV of Interest payments of

$                            6,000.00

11.01850

$                       66,111.00

Issue Price of Bonds

$                       94,491.00

  • Concept

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and

Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor]

Annual Rate

Applicable rate, because of Semi Annual payments

Market Rate

13.0%

6.5%

Coupon Rate

12.0%

6.0%

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