Question

On January 1, 2010, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds

Answer 1

Answer:

$2,686,898

Explanation:

The computation of the issued price of the bond is as follows;

= Maturity value present value + interest payment maturity value

= $3,000,000 × 02697 + (($300,000 × 0.12) × 5.2161)

= $2,686,898

The 0.297 represent the PVF at 14% for 10 period

5.6502 represent the Present value of an annyity for 10 period at 12%