Question

Waterhouse Company plans to issue bonds with a face value of $503,500 and a coupon rate of 8 percent. The bonds will mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds are sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)
Determine the issuance price of the bonds assuming an annual market rate of interest of 6 percent.

Answer 1

Answer:

$578,408

Explanation:

face value = $503,500

maturity = 10 years x 2 = 20 periods

coupon rate = 8% / 2 = 4%

coupon = $20,140

YTM = 6% / 2 = 3%

using a financial calculator, the PV of the bonds = $578,408

Dr Cash 578,408

   Cr Premium on bonds payable 74,908

   Cr Bonds payable 503,500