On January 1, 2017, Sheffield Corp. issued ten-year bonds with a face amount of $5800000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:
Present value of 1 for 10 periods At 8% 0.463.
At 10%. 0.386
Present value of an ordinary annuity of 1 for 10 periods. At
8% 6.710. At 10%. 6.145
The total issue price of the bonds was:
Bond characterstics | Amount | |||||||
1-a) | Principal | 5,800,000 | ||||||
interest | 464,000 | |||||||
Market interest rate | 10% | |||||||
periods to maturity | 10 | |||||||
issue price | 5,090,080 | answer | ||||||
Calculation of bond issue price | ||||||||
Where | ||||||||
i= | 10.00% | |||||||
t= | 10 | |||||||
principal | * | PV of $1 at 10% for 10 yrs = | ||||||
5,800,000 | * | 0.386 | = | 2238800 | ||||
interest | * | PV of ordinary annuity at 10%= | ||||||
464000 | * | 6.145 | = | 2851280 | ||||
bond issue price | 5090080 | |||||||
On January 1, 2017, Sheffield Corp. issued ten-year bonds with a face amount of $5800000 and...
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