Woodwick Company issues 9%, five-year bonds, on December 31, 2014, with a par value of $96,000 and semi-annual interest payments
1 answer:
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Answer:
When using a financial calculator to compute the issue price of the bonds, the applicable periodic interest rate ("I") is 3.923%
Explanation:
Hi, first, the discount interest rate that you have to choose is 8%, because 9% is the coupon rate (which in our case would be 9%/2=4.5% and this is used only to find the amount to be paid semi-annually).
Now we know we have to choose 8%, but this is an effective rate (I know this is an effective rate because no units were mentioned), and by definition it is a periodic rate, but it is not the rate that we need since the payments are going to be made in a semi-annual way, therefore we need to use the following equation.
So, everything should look like this.
Therefore, the periodic interest that yuo have to use to calculate the price of the bond is 3.923%
Best of luck.