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Present Value

On January 1, 2004, Grant Co. issued ten-year bonds with a face amount of $5,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:
8% 10%
Present value of 1 for 10 periods 0.46 0.386
Present value of an ordinary annuity of 1 for 10 periods 6.71 6.145
The total issue price of the bonds was
a. $5,000,000.
b. $4,999,000.
c. $4,614,000.
d. $4,388,000.

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The total issue price will be the present value of interest and principal discounted at the yield of 10%. The interest per year is ...

Solution Summary

The solution explains how to calculate the present value of a bond issue