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Question 8 --/1 View Policies Current Attempt in Progress Windsor Inc. issues $2,700,000 of 7% bonds due in 10 years with int

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Answer #1

Annual interest payment = 2,700,000 x 7%

= $189,000

Present value of principal to be received at maturity = Par value of bonds x PVF (i%, n)

= 2,700,000 x PVF (8%, 10)

= 2,700,000 x 0.46319

= $1,250,613

Present value of principal to be received periodically over the term of the bonds = Interest x PVAF (i%, n)

= 189,000 x PVAF (8%, 10)

= 189,000 x 6.71008

= $1,268,205

Amount received at the time of bond issued = Present value of principal to be received at maturity + Present value of principal to be received periodically over the term of the bonds

= 1,250,613 + 1,268,205

= $2,518,818

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