Issue Price of a Bond Abbott, Inc., plans to issue $500,000 of ten percent bonds that...

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Issue Price of a Bond Abbott, Inc., plans to issue $500,000 of ten percent bonds that...

Issue Price of a Bond
Abbott, Inc., plans to issue $500,000 of ten percent bonds that will pay interest semiannually and mature in five years. Assume that the effective interest rate is 12 percent per year compounded semiannually. Calculate the selling price of the bonds.

Round answers to the nearest whole number.

Selling price of bonds is

$

business accounting

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Answer 1

Answer #1

	Amount	PV factor 6%	Present value
Semi-annual interest	25000	7.36009	184002.18
Principal	500000	0.55839	279197.39
Total			463199.56

Selling price of bonds is	463200	or 463199

Workings:
Semi-annual interest	25000	=500000*10%/2
Semi-annual effective rate	6%	=12%/2
Semi-annual periods	10	=5*2

PV factor 6%:
Semi-annual interest	7.36009	=(1-(1.06)^-10)/0.06
Principal	0.55839	=1/1.06^10

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Answer 2

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