Question

Marin Corporation issues $520,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%.
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 $enter the issue price of the bonds rounded to 0 decimal places

Answer 1

Answer:

The issue price of the bond is $ 487,598 as calculated in the attached  

Explanation:

The issue price of the bond is the present value of the future cash flows payable by the bond.The discount factor with which to multiply the future cash flows to arrive at present value is modified by dividing the rate by 2 to show that interest is payable semi-annually and also by multiplying n, the number of years by 2 to indicate that the interest would now be paid at a time that doubles the original time horizon.

The formula for present value in the case is :FV/(1+10%/2)^n*2

In calculating the present of coupon interest received in the first six months,the coupon interest is calculated $520000*9%/2=$23400,then the present of this amount is gotten by multiplying $23400 with (1+10%/2)^1*2

Find detailed computation in the attached.

The par value of $520000 is added to the last interest as it payable then.

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