question archive A $700,000, ten-year, 9% bond issue was sold to yield 10% interest payable annually
A $700,000, ten-year, 9% bond issue was sold to yield 10% interest payable annually
Subject:AccountingPrice:3.87 Bought7
A $700,000, ten-year, 9% bond issue was sold to yield 10% interest payable annually. Actuarial information for 10 periods is as follows:
|
? |
9% |
10% |
|
Present value of 1 |
0.42241 |
0.38554 |
|
Present value of an annuity of 1 |
6.41766 |
6.14456 |
???Refer to Exhibit 14-4. The discount or premium at the date of bond issuance would be
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Answer:
Bond issue price is as calculated below:
| Particulars | Amount |
| Present Value of Annual interest of $63,000 for 10 Annual years is | $3,87,107 |
| 63,000*6.14456 (Cumulative factor of 10 periods of 10%) | |
| Present value of a single payment at the Maturity date | |
| $700,000*.38554 (Factor at end of 10th period of 10%) | $2,69,878 |
| Issue Price of bond | $6,56,985 |
Bond is issued at a discount of $43,015
