Question

The company issues 7.5%, 10-year bonds with a total face amount of $1,000,000 with interest paid semi-annually. The market rate of interest is 7.4% n % pV PVA 10 7.40% 0.489731 6.895533 10 7.50% 0.485194 6.864081 20 3.70% 0.483532 13.958605 20 3.75% 0.478892 13.896204 2. What is the issue price of the bond? $ 3. What is the interest expense for the first Interest payment? $

Answer 1

The issue price of the bond is $6,864,081.

Step-by-step explanation:

To calculate the issue price of the bond, we need to use the present value formula. The present value of the bond's future cash flows can be calculated by discounting them using the market rate of interest. In this case, we have a 10-year bond with a total face amount of $1,000,000 and a semi-annual interest payment of 7.5%. The market rate of interest is 7.4%. So, the formula to calculate the issue price of the bond is:

Issue Price = (Face Amount / (1 + (Market Rate/2))^ (Number of Semi-Annual Periods)).

Plugging in the values, we get:

Issue Price = ($1,000,000 / (1 + (7.4%/2))^10) = $6,864,081.