Question

Kelly Industries issued 9% bonds, dated January 1, with a face value of $120,000 on January 1, 2021. The bonds mature in 2031 (10 years). Interest is paid semiannually on June 30 and December 31. For bonds of similar risk and maturity the market yield is 10%. What was the issue price of the bonds? FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice $85,345. $67,296. $112,523. $117,985.

Answer 1

Issue price of the bonds = Present value of the bonds

Interest is paid semiannually

Interest = $120,000 * (9/2)%

= $5,400

Market yield = 10% / 2

= 5%

n (periods) = 10 * 2

= 20

Present value of bonds = PVAF(5%,20) * $5,400 + PVF(5%,20) * $120,000

= 12.46221 * $5,400 + 0.37689 * $120,000

= $67,296 + $45,227

= $112,523

Issue price of the bonds is $112,523