Sharmer Company issues 5%,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 Present Value of $1 factor for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate and period is 8.5302?
A)$957,355
B)$1,000,000
C)$1,250,000
D)$786,745
E)$1,213,255

Question

Quizplus · Accepted Answer

The bond's issue price is calculated by finding the present value of the principal and the present value of the interest payments. The present value of the principal is $1,000,000 * 0.7441 = $744,100. The semiannual interest payment is $1,000,000 * 5% / 2 = $25,000. The present value of the annuity of interest payments is $25,000 * 8.5302 = $213,255. The bond's issue price is $744,100 + $213,255 = $957,355.

Sharmer Company Issues 5%,5 Year Bonds with a Par Value