Final answer:
The present value of the principle is $867,110.76, the present value of interest is $525,005.24, and the issue price of the bonds is $1,392,116.
Step-by-step explanation:
To calculate the present value of the principle, we need to discount the future cash flows back to the present using the yield rate. In this case, the future cash flows are the $1,500,000 face value of the bond received at maturity in 8 years. The yield rate is 8%. Using the formula for present value, the present value of the principle can be calculated as follows:Present Value of Principle = (Face Value) / (1 + Yield Rate)^Number of Periods Present Value of Principle = $1,500,000 / (1 + 0.08)^8 = $867,110.76To calculate the present value of interest, we need to discount the future cash flows of the interest payments back to the present using the yield rate. In this case, the interest payments are received semi-annually for 8 years. The yield rate is 8%. Using the formula for present value, the present value of interest can be calculated as follows:Present Value of Interest = (Interest Payment) / (1 + Yield Rate/2)^Number of Periods Present Value of Interest = (0.06 / 2) * $1,500,000 * [1 - (1 / (1 + 0.08/2)^16)] / (0.08/2) = $525,005.24To calculate the issue price of the bonds, we need to sum the present value of the principle and the present value of interest. The issue price of the bonds is equal to the sum of these two present values:Issue Price = Present Value of Principle + Present Value of Interest Issue Price = $867,110.76 + $525,005.24 = $1,392,116