1.On January 1, 2014, a company issued eight-year bonds with a face value of $3,

Q: 1.On January 1, 2014, a company issued eight-year bonds with a face value of $3,

A./ PRESENT VALUE OF THE PRINCIPAL = MATURITY VALUE * PVIF 8%, 8PERIODS = $3000000 * 0.540 = $1620000 B./ PRESENT VALUE OF INTEREST = SEMIANNUAL INTEREST * PVIFA 4%, 16PERIODS = $90000 * 11.652 = $1048680 C./ THE ISSUE PRICE OF THE BOND = PRESENT VALUE OF INTEREST + PRESENT VALUE OF PRINCIPAL = $1048680 + $1620000 = $2668680

ID: 2462982 • Letter: 1

Question

1.On January 1, 2014, a company issued eight-year bonds with a face value of $3,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:

Present value of 1 for 8 periods at 6%.......................................................................................................................... .627

Present value of 1 for 8 periods at 8%.......................................................................................................................... .540

Present value of 1 for 16 periods at 3%.......................................................................................................................... .623

Present value of 1 for 16 periods at 4%.......................................................................................................................... .534

Present value of annuity for 8 periods at 6%.......................................................................................................................... 6.210

Present value of annuity for 8 periods at 8%.......................................................................................................................... 5.747

Present value of annuity for 16 periods at 3%.......................................................................................................................... 12.561

Present value of annuity for 16 periods at 4%.......................................................................................................................... 11.652

Calculate each of the following. Be sure to display your work in detail for partial credit.

a)The present value of the principal is

b)The present value of the interest is

c)The issue price of the bonds is

Explanation / Answer

A./

PRESENT VALUE OF THE PRINCIPAL

= MATURITY VALUE * PVIF 8%, 8PERIODS

= $3000000 * 0.540

= $1620000

B./

PRESENT VALUE OF INTEREST

= SEMIANNUAL INTEREST * PVIFA 4%, 16PERIODS

= $90000 * 11.652

= $1048680

C./

THE ISSUE PRICE OF THE BOND

= PRESENT VALUE OF INTEREST + PRESENT VALUE OF PRINCIPAL

= $1048680 + $1620000

= $2668680

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1.On January 1, 2014, a company issued eight-year bonds with a face value of $3,

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