Question

On January 1, a company issues bonds dated January 1 with a par value of $200,000. The bonds mature in 3 years. The contract rate is 4%, and interest is paid semiannually on June 30 and December 31. The market rate is 5%. Using the present value factors below, the issue (selling) price of the bonds is:

Answer 1

Answer:

b. $194,492

Explanation:

Note: The  present value factors is attached as picture below

Multiple Choice $205,607.  $194,492.  $200,000.  $22,032.  $172,460.

00,000

Calculation of Bond issue price                        

                                                           PV factor at 2.50%

Pv value of bond               200,000             0.8623                 172,460

Pv of interest at 2%, 6       4,000                  5.5081                  22,032

semi annual installment

Present value of the Bond                                                        $194,492