Brief Exercise 14-01 Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest...

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Brief Exercise 14-01 Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually.

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Answer 1

Answer #1

Issue price of Bonds = $468,845

Working

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at market rate of interest, and

Discounted Interest payments amount (during the lifetime) at market rate of interest.

.

	Annual Rate	Applicable rate	Face Value	$ 500,000
Market Rate	10.00%	5.00%	Term (in years)	10
Coupon Rate	9.00%	4.50%	Total no. of interest payments	20

.

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 5,00,000	at	5.00%	Interest rate for	20	term payments
PV of $1	0.37689
PV of	$ 5,00,000	=	$ 500,000	x	0.37689	=	$ 188,445	A

Interest payable per term	at	4.50%	on	$ 500,000
Interest payable per term	$ 22,500

PVAF of 1$	for	5.00%	Interest rate for	20	term payments
PVAF of 1$	12.46221
PV of Interest payments	=	$ 22,500	x	12.46221	=		$ 280,400	B

				Bond Value (A+B)			$ 468,845

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