Question

Multiple Choice Question 62 On January 1, 2017, Sheffield Corp. issued eight-year bonds with a face value of $6140000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: 0.467 Present value of 1 for 8 periods at 10% Present value of 1 for 8 periods at 12% Present value of 1 for 16 periods at 5% Present value of 1 for 16 periods at 6% Present value of annuity for 8 periods at 10% Present value of annuity for 8 periods at 12% Present value of annuity for 16 periods at 5% Present value of annuity for 16 periods at 6% 0.404 0.458 0.394 5.335 4.968 10.838 10.106 The issue price of the bonds is O $5530912. $5583102 $6143070 $5521702 9:37 PM

Answer 1

ANSWER

Correct option(D)=%5,521,702

Present value of semi annual interest =(6,140,000 * (10%/2)) x P_VAR(12%/2,8*2)

=(6,140,000*5%) x(1-((1+6%)^-16) / 6%)

=307,000 x 10.106

=$3,102,542

Present value of Principal =6,140,000 xPV(6% ,16)

=6,140,000 x (1 /((1+6%)¹⁶)

=6,140,000 x0.394

=$2,419,160

Total Present Value =3,102,542 + 2,419,160

=$5,521,702

Therefore,

Issue Price of the bonds =$5,521,702

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