Share
Explore BrainMass

# Calculating the issue price of bonds

On January 1, 2014, Marino Corporation issued eight year bonds with a face value of \$5,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:

Present value of 1 for 8 periods at 6%...................................... .627
Present value of 1 for 8 periods at 8%...................................... .540
Present value of 1 for 16 periods at 3%..................................... .623
Present value of 1 for 16 periods at 4%..................................... .534
Present value of an annuity for 8 periods at 6%........................ 6.210
Present value of an annuity for 8 periods at 8%........................ 5.747
Present value of an annuity for 16 periods at 3%........................ 12.561
Present value of an annuity for 16 periods at 4%........................ 11.652

What is the issue price of the bonds?

a. \$4,417,800
b. \$4,424,100
c. \$4,600,000
d. \$5,619,000

#### Solution Preview

Semi annual interest payment=5000000*6%/2=\$150000

PV of interest payments=Semi annual interest payment*Present value of an annuity for 16 ...

#### Solution Summary

Solution describes the steps to estimate the issue price of the bonds in the given case.

\$2.19