On January 1, 2020, Tiffany and Company issues 3 year bonds payable with a face value $100,000, stated interest 10% payable at 12/31 each year. Market interest rate is 8%. What should be the issuance price at 1/1/2020?
Please help with explanation and steps.
Homework Answers
Calculation of Issuance price of the bonds
Present value of the bonds= $100000*0.79383= $79383
Present value of the Interest expense= $100000*10%*2.57710= $25771
Issuance price of the bonds= Present value of the bonds+Present value of the Interest expense
= $79383+25771
= $105154
0.79383 is the Present value of 1, when i= 8%, n= 3 years
2.57710 is the Present value of ordinary annuity of 1, when i= 8%, n= 3 years
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