Issue price of the bonds
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On January 1, 2010, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31. The bonds were sold to yield 10%. Table values are:
Present value of 1 for 10 periods at 8% 0.46319
Present value of 1 for 20 periods at 4% 0.45639
Present value of annuity for 10 periods at 8% 6.71008
Present value of annuity for 20 periods at 4% 13.59033
What should be the issue price of the bonds? Please provide a detailed, easy to understand calculation
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Solution Summary
The solution explains how to calculate the issue price of the bonds. The issue price of the bonds are determined.
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The issue price of the bonds is the present value of interest and principal discounted at the yield. The interest is payable semi annually and so the amount per semi-annual period is 5,000,000 principal amount X 8% stated rate X 6/12 for each 6 months = $200,000. The principal amount is $5,000,000
For semi-annual analysis, the discounting rate would be 10%/2 = 5% and ...
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