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Roman Destinations issues bonds due in 10 years with a stated interest rate of 5% and a face value of $520,000 Interest payme

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Answer #1

Answer

  • Correct Answer = Option #1: $ 562,513

Amount

PV factor

Present Values

PV of Face Value of

$                       520,000.00

0.67297

$                     349,944.40

PV of Interest payments of

$                          13,000.00

16.35143

$                     212,568.59

Issue Price of Bonds

$                     562,512.99

  • 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

4.0%

2.0%

Coupon Rate

5.0%

2.5%

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