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Computation of Bond Liability for Lance Armstrong Inc.

(Computation of Bond Liability) Lance Armstrong Inc. manufactures cycling equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% term corporate bonds on March 1, 2003, due on March 1, 2018, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%.

Instructions
As the controller of the company, determine the selling price of the bonds.

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Solution Summary

The solution explains how to compute the bond liability at the time of issuance given the par value, coupon rate, maturity and discount rate. The formula and calculations are shown clearly.

$2.19