Question

Marwick Corporation issues 8%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following Present Value factors: n= i= Present Value of an Annuity Present value of $1 5 8 % 3.9927 0.6806 10 4 % 8.1109 0.6756 5 6 % 4.2124 0.7473 10 3 % 8.5302 0.7441

Answer 1

Issue selling price = $1085308

Step-by-step explanation:

given data

par value = $1,000,000

time = 5 year

interest rate = 8 %

annual market rate = 6%

n i Present Value of an Annuity Present value of $1

5 8% 3.9927 0.6806

10 4% 8.1109 0.6756

5 6% 4.2124 0.7473

10 3% 8.5302 0.7441

to find out

What is the bond's issue (selling) price

solution

we use here Factors 3% have been used as annual market rate = 6%

interest payments are semiannual also use

so first we get here

Interest expense that is

Interest expense = par value × interest rate ×
`(1)/(2)` ...........1

Interest expense = 1,000,000 × 8% ×
`(1)/(2)`

Interest expense annuity = $40000

so

Issue selling price will be here as

Issue selling price = $1000000 × 0.7441 + $40000 × 8.5302

Issue selling price = $1085308