Question

Marwick Corporation issues 8%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following Present Value factors: n= i= Present Value of an Annuity Present value of $1 5 8 % 3.9927 0.6806 10 4 % 8.1109 0.6756 5 6 % 4.2124 0.7473 10 3 % 8.5302 0.7441

Answer 1

Answer:

Issue selling price  =  $1085308

Explanation:

given data

par value = $1,000,000

time = 5 year

interest rate = 8 %

annual  market rate =  6%

n               i                Present Value of an Annuity       Present value of $1

5              8%              3.9927                                         0.6806

10             4%              8.1109                                           0.6756

5               6%             4.2124                                           0.7473

10              3%             8.5302                                          0.7441

to find out

What is the bond's issue (selling) price

solution

we use here Factors 3% have been used as annual market rate =  6%

interest payments are semiannual also use

so first we get here

Interest expense that is

Interest expense = par value ×  interest rate   × $\frac{1}{2}$   ...........1

Interest expense = 1,000,000 × 8% × $\frac{1}{2}$

Interest expense  annuity = $40000

so

Issue selling price will be here as

Issue selling price  = $1000000 × 0.7441 + $40000 × 8.5302

Issue selling price  =  $1085308