Marwick Corporation issues 12%, 5 year bonds with a par value of $1,120,000 and

Question

Marwick Corporation issues 12%, 5 year bonds with a par value of $1,120,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%. What is the bond's issue (selling) price, assuming the following Present Value factors:

Marwick Corporation issues 12%, 5 year bonds with a par value of $1,120,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%. What is the bond's issue (selling) price, assuming the following Present Value factors. Present Value Present n= i- of an Annuity value of $1 5 12% 10 3.6048 7.3601 3.7908 7.7217 0.5674 0.5584 0.6209 0.6139 6% 10% 10 5% Multiple Choice $1,638,898 $1,206,466 $909,244 $601,102

Explanation / Answer

Bond characterstics Amount 1-a) Principal 1,120,000 interest              67,200 Market interest rate 5% periods to maturity 10 issue price 1,206,466 answer Calculation of bond issue price Where i= 5.00% t= 10 principal * PV of $1 at 5% for 10 yrs = 1,120,000 * 0.6139        =       687,568 interest * PV of ordinary annuity at 5%= 67200 * 7.7217 = 518,898 bond issue price 1,206,466

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