Question

Splish Corporation issues $450,000 of 9% bonds, due in 9 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

If it is helpful, please rate the answer and if any doubt arises let me know

Issue price of bonds	=	$    4,23,698
Workings:
Cash flow	Period	Amount	P.V Factor @5%	Present Value
Maturity value	18	$    4,50,000	0.41552	$         1,86,984
Interest (annuity)	1 to 18	$       20,250	11.68959	$         2,36,714
Total proceeds				$         4,23,698
Working notes:-
Interest is payable semiannualy i.e twice a year
Semiannual coupon rate	=	Coupon rate / 2
	=	9% / 2
	=	4.50%
Number of semiannual periods	=	Number of years X 2
	=	9 years X 2
	=	18 years
Interest payment	=	$450000 X 4.5%
	=	$       20,250
Semiannual market interest rate	=	10% / 2
	=	5.0%