Answer:
Issue selling price = $1085308
Explanation:
given data
par value = $1,000,000
time = 5 year
interest rate = 8 %
annual market rate = 6%
n i Present Value of an Annuity Present value of $1
5 8% 3.9927 0.6806
10 4% 8.1109 0.6756
5 6% 4.2124 0.7473
10 3% 8.5302 0.7441
to find out
What is the bond's issue (selling) price
solution
we use here Factors 3% have been used as annual market rate = 6%
interest payments are semiannual also use
so first we get here
Interest expense that is
Interest expense = par value × interest rate × [tex]\frac{1}{2}[/tex] ...........1
Interest expense = 1,000,000 × 8% × [tex]\frac{1}{2}[/tex]
Interest expense annuity = $40000
so
Issue selling price will be here as
Issue selling price = $1000000 × 0.7441 + $40000 × 8.5302
Issue selling price = $1085308