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Wildhorse Corporation issues $450,000 of 8% bonds, due in 9 years, with interest payable semiannually. At...

Wildhorse Corporation issues $450,000 of 8% bonds, due in 9 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%.

Compute the issue price of the bonds. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

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Answer #1

Face value of bonds = $450,000

Annual coupon rate = 8%
Semiannual coupon rate = 4%
Semiannual coupon = 4% * $450,000
Semiannual coupon = $18,000

Time to maturity = 9 years
Semiannual period = 18

Annual interest rate = 10%
Semiannual interest rate = 5%

Issue price of bonds = $18,000 * PVA of $1 (5%, 18) + $450,000 * PV of $1 (5%, 18)
Issue price of bonds = $18,000 * 11.68959 + $450,000 * 0.41552
Issue price of bonds = $397,397

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