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Current Attempt in Progress Ivanhoe Company issued 6%, 6-year, $270,000 par value bonds that pay interest annually on April 1

Link to view the factor table (https://education.wiley.com/content/Kimmel_Financial_Accounting_9e/media/simulations/hidden/Wey_Fin_9e_pvtables.pdf)

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Answer #1

Cash proceeds from the Issuance of the Bond

The Issue Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value

Par Value of the bond = $270,000

Annual Coupon Amount = $16,200 [$270,000 x 6.00%]

Annual Yield to Maturity of the Bond = 8.00%

Maturity Period = 6 Years

Therefore, the Issue Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $16,200[PVIFA 8.00%, 6 Years] + $270,000[PVIF 8.00%, 6 Years]

= [$16,200 x 4.62288] + [$270,000 x 0.63017]

= $74,891 + $170,146

= $245,037

“Hence, the Cash proceeds from the Issuance of the Bond will be $245,037”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.  

-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.  

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