Question

On January 1, 2017, Sheffield Corp. issued ten-year bonds with a face amount of $5800000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:

Present value of 1 for 10 periods At 8% 0.463.    At 10%. 0.386
Present value of an ordinary annuity of 1 for 10 periods. At 8%  6.710.   At 10%.   6.145

The total issue price of the bonds was:

Answer 1

	Bond characterstics				Amount
1-a)	Principal				5,800,000
	interest				464,000
	Market interest rate				10%
	periods to maturity				10
	issue price				5,090,080	answer
	Calculation of bond issue price
	Where
	i=	10.00%
	t=	10
	principal		*	PV of $1 at 10% for 10 yrs =
	5,800,000		*	0.386		=	2238800
	interest		*	PV of ordinary annuity at 10%=
	464000		*	6.145		=	2851280
	bond issue price						5090080