Wildhorse Corporation issues $410,000 of 9% bonds, due in 9 years, with interest payable semiannually. At...
Wildhorse Corporation issues $410,000 of 9% bonds, due in 9 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%, Compute the issue price of the bonds.
Homework Answers
Answer:
Face value is $410,000
Interest payment = Face value x interest rate = $410,000 x 9% x 6/12 = $18,450
Issue price:
| Present value of the interest payments | $215,673 |
| [$18,450 x 11.68959 present value annuity factor (5%, 18 years)] | |
| Present value of the face value | $170,363 |
| [$410,000 x 0.41552 present value factor (5%, 18 years)] | |
| Issue price of the bonds | $386,036 |
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