Question

Trego Company issued, payable on December 31, 2015, $10,000 face value, 8%, 4-year bonds. Interest will be paid annually each December 31. Market interest rate on similar bonds is 6%. Trego uses the effective interest rate method of amortizing bond discount or premium. (PV of annuity; n; n=4;i=6%)=3.46511 (PV; n=4;i=6%)=0.79209 What is the issuing price?

a. $9,503.
b. $10,735.
c. $10,693.
d. $9,603.

Answer 1

Answer: $10693

Step-by-step explanation:

The issuing price can.wb calculated thus:

Firstly, we'll calculate the annual interest which will be:

= $10000 × 8%

= $800

The present value of the interest will be:

= 800 × pvifa (6%,4yrs)

= 800 × 3.46511

= 2772.09

Pv of face value will be:

= 1000 × pvif(6%,4yrs)

= 10000*0.79209

=7920.90

Therefore, the issuing price will be:

= PV of interest + present value of face value

= 2772.09 + 7920.90

= 10692.99

= $10693

Therefore, issuing price is $10693.