Issue price of bond = present value of principal value on bond + present value of interest on bond
= {$39,300,000 x PVF(3%, 20)} + {$1,375,500 x PVAF(3%, 20)}
= ($39,300,000 x 0.55368) + ($1,375,500 x 14.87747)
= $21,759,624 + $20,463,959.985
= $42,223,584
where,
Coupon rate = 7%/2 = 3.5% semiannually
interest on bond = $39,300,000 x 3.5% = $1,375,500
Market interest rate = 6%/2 = 3% semiannually
Time period = 10 x 2 = 20
Therefore,
PVF(3%, 20) = 0.55368
PVAF(3%, 20) = 14.87747
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