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Mind Explorers issues bonds with a stated interest rate of 8%, face value of $180,000, and due in 10 years. Interest payments

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Answer #1

Answer

  • Correct Answer = Option #1: $ 192,792

Amount

PV factor

Present Values

PV of Face Value of

$                       180,000.00

0.50257

$                       90,462.60

PV of Interest payments of

$                            7,200.00

14.21240

$                     102,329.28

Issue Price of Bonds

$                     192,791.88

  • 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

7.0%

3.5%

Coupon Rate

8.0%

4.0%

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