Question

Required information [The following information applies to the questions displayed below.] Cron Corporation is planning to issue bonds with a face value of $770,000 and a coupon rate of 13 percent. The bonds mature in five years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Cron uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Required: 1. What was the issue price on January 1 of this year ? (Round your final answers to nearest whole dollar amount.) Issue price

Answer 1

Answers Given information, a face value = $170,000 ① The issue price on January 1 of this year: Issu price =(prestent value of annuity x interest payment] +[present value factor x -face value] present vakur d annuity factor, [1-(1+)"]17. -@ Here, = 120%. per annum =>6.. for 6 months => 0.06 na 5 years xa scm' annual periods = 10 semi annud periods. Now, substitute values in eqn@

{1- (06 ) | 0.06 >> 0.4416052 0.06 > > 7. 360087051. and, interest Payment = $ 770,000 X 13.11.8612 $600 600 12 .= $50050 Present value fae-box = 11 (1+0) => 1.00 =>0:55839478 face valee = $770,000 Now, . substitute values in Eqn ☺

issue price d bond = (7.36008667X $50050) '+(0.55839478 * $ 730,000) = (368372.3378 )+(429963.9806) 429963.9806 = $798336 : issue price do bond = $798,336