Final answer:
The issuance price of Global Company's bonds, with a coupon rate of 8% and a market interest rate of 6%, is calculated using the present value of annuity and lump sum, resulting in a price of $1,112,840.
Step-by-step explanation:
The student is asking how to calculate the issuance price of bonds when the coupon rate is different from the market interest rate. Using the given present value (PV) factors, we can find the present value of both the annuity (interest payments) and the lump sum (principal repayment) to determine the bond's price. Since Global Company issued $1,000,000 bonds at 8% with interest payable semiannually, and the market rate is 6%, we first find the semiannual interest payment which is $40,000 (0.08 x $1,000,000 / 2). We use the PV Annuity factor for this portion. Then, we calculate the present value of the principal to be repaid at the end of the bond's term using the PV factor.
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To calculate the price:
- Present Value of Annuity (Interest Payments): $40,000 x 11.296 = $451,840
- Present Value of Lump Sum (Principal Repayment): $1,000,000 x 0.661 = $661,000
Therefore, the issuance price of the bonds is the sum of these two present values: $451,840 + $661,000 = $1,112,840.