Tavinona Company issued 1,000; $1,000 bonds for a bond issue of $1,000,000. The bonds were issued...

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Tavinona Company issued 1,000; $1,000 bonds for a bond issue of $1,000,000. The bonds were issued...

Tavinona Company issued 1,000; $1,000 bonds for a bond issue of $1,000,000. The bonds were issued for a 10-year term with a coupon rate of 4.5%. a. The current market rate is 5.8%. Calculate the present (market) value of one bond, then calculate the amount of the bond discount.

$902.40; $97.60
$912.19; $87.81
$949.86; $50.14
$944.27; $55.73

business accounting

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Answer 1

Answer #1

Assuming semi-annual interest payments:

	Amount	PV factor	Present value
Semi-annual Interest	22.50	15.01596	337.86
Principal	1000	0.56454	564.54
			902.40

Present (market) value	902.40
Amount of the bond discount	97.60	=1000-902.40

Option A $902.40; $97.60 is correct

Workings:
Semi-annual Interest	22.50	=1000*4.5%/2
Semi-annual market rate	2.90%	=5.8%/2
Number of periods	20	=10*2

PV factor:
Semi-annual Interest	15.015961	=(1-(1.029)^-20)/0.029
Principal	0.564537	=1/1.029^20

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Answer 2

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