Final answer:
The carrying value of the bonds on the date of issue can be calculated using the present value formula. The formula calculates the present value of the bond's future cash flows, which include the stated interest payments and the principal repayment at maturity.
Step-by-step explanation:
The carrying value of the bonds on the date of issue can be calculated using the present value formula.
The formula calculates the present value of the bond's future cash flows, which include the stated interest payments and the principal repayment at maturity.
In this case, the bond has an annual interest payment of $8,000 (100,000 x 8%). S
ince the bond matures in 10 years, the total interest payments over the life of the bond would be $80,000 (8,000 x 10).
The principal repayment at maturity is the face value of the bond, which is $100,000.
To calculate the carrying value of the bond on the date of issue, we need to discount the future cash flows using the stated interest rate of 8%.
The discounting factor for each year can be calculated by dividing 1 by (1 + interest rate) raised to the power of the number of years.
Since the bond pays interest once per year on December 31, the carrying value on the date of issue is the present value of the interest payments plus the present value of the principal repayment.