Question

On January 1, Broker Corp. issued $3,600,000 par value 11%,11 year bonds which pay interest each December 31. If the market rate of interest was 13%, what was the issue price of the bonds

Answer 1

Answer:

$3,190,524

Explanation:

the issue price of the bonds was:

PV of face value = $3,600,000 / (1 + 13%)¹¹ = $938,511.55

PV of coupon payments = $396,000 x 5.6869 (PV annuity factor, 13%, 11 periods) = $2,252,012.40

issue price = $3,190,524

Dr Cash 3,190,524

Dr Discount on bonds payable 409,476

    Cr Bonds payable 3,600,000