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hep Save & Ex On January 1, 2021, Anne Teak Furniture issued $100,000 of 10% bonds, dated January 1. Interest is payable semi
o $93,566. o $87,959. o $61,936. o
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Answer #1

Answer:

Anne Teak Furniture

Calculation of issue price of a bond:

Given information:

Issue value – 10% bonds for $100,000

Mature in 11 years

Market rate = 12%

Interest payable semiannually on June 30 and Dec 31          

Issue Price of bond = present value of principal + present value of interest payments

We use, coupon rate to calculate interest payments and market interest rate to calculate the present value

Semiannual interest = $100,000 x 10% x 6/12 = $5,000

Period, n = 2 x 11 = 22

Market interest rate for semiannual periods = 12%/2 = 6%

Present value of interest at maturity = $5,000 x (P/A, 6%, 22)

Present value of interest = 5,000 (12.0416) = $60,208

Present value of principal = $100,000 (P/F, 6%, 22)

= 100,000 (0.27751) = $27,751

Issue price of bond = $27751 + $60208 = $87,959

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