Answer
Amount |
PV factor |
Present Values |
|
PV of Face Value of |
$ 400,000.00 |
0.79031 |
$ 316,124.00 |
PV of Interest payments of |
$ 20,000.00 |
5.24214 |
$ 104,842.80 |
Issue Price of Bonds |
$ 420,966.80 |
>PV of Bond payment at maturity = $
400000 x 0.79031 [at 4% for 6th period] = $ 316124
>PV of bi annual interest payments = ($400000 x 10% x 6/12) x
5.24214 [at 4% for 6th period] = $ 104842.80
>Market price of Bonds = $ 420,966.80
Bonds issue price is calculated by ADDING the: |
Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and |
Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor] |
Annual Rate |
Applicable rate, because of Semi Annual payments |
|
Market Rate |
8.0% |
4.0% |
Coupon Rate |
10.0% |
5.0% |
Face Value |
$ 400,000.00 |
Term (in years) |
3 |
Total no. of interest payments |
6 |
Date |
Accounts titles |
Debit |
Credit |
I Jan 2012 |
Cash |
$ 420,968.55 |
|
Premium on Bonds payable |
$ 20,968.55 |
||
Bonds payable |
$ 400,000.00 |
Please help thank you January 1, 2012 Kristy Corp is issuing 400,000 of 10% 3-year bonds...
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