Question

Marwick Corporation issues 8%, 5 year bonds with a par value of $1,210,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following Present Value factors: n

Answer 1

$1,313,222.68

Step-by-step explanation:

Calculation for the bond's issue (selling) price

First step

Interest expense = Par value *Interest rate× ½

Let plug in the formula

Interest Expense = $1,210,000 * .08 * ½ = 40,000 (this is an annuity)

Interest expense =96,800×½

Interest expense = 48,400

Second step

Calculation for the bonds issues

($1,210,000 * .7441) + (48,400 * 8.5302) = $1,085,308

=$900,361+$412,861.68

=$1,313,222.68

Therefore the bond's issue (selling) price will be $1,313,222.68