Question

Brief Exercise 14-01 Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Click here to view factor tables. 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.) Issue price of the bonds $

Answer 1

Answer

• Issue Price of the Bond = $ 468,845
• Concept:

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and

Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor]

• Data

	Annual Rate	Applicable rate, because of Semi Annual payments
Market Rate	10.0%	5.0%
Coupon Rate	9.0%	4.5%

Face Value	$             500,000.00
Term (in years)	10
Total no. of interest payments	20

• Calculation

	Amount	PV factor	Present Values
PV of Face Value of	$                       500,000.00	0.37689	$                     188,445.00
PV of Interest payments of	$                          22,500.00	12.46221	$                     280,399.73
Issue Price of Bonds			$                     468,844.73