## Answers

*1. Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%:*

Interest payment = $1,900,000 x 10% = $190,000

Present value of interest payment | $1,176,930 |

[$190,000 x 6.19437 present value annuity factor (12%, 12 years)] | |

Present value of face value of the bonds payable | $487,692 |

[$1,900,000 x 0.25668 present value factor (12%, 12 years)] | |

Issue price of the bonds | $1,664,622 |

*2. Maturity 9 years, interest paid semiannually, stated rate 10%, effective (market) rate 12%:*

Interest payment = $1,900,000 x 10% x 6/12 = $95,000

Present value of interest payment | $1,028,622 |

[$95,000 x 10.82760 present value annuity factor (6%, 18 years)] | |

Present value of face value of the bonds payable | $665,646 |

[$1,900,000 x 0.35034 present value factor (6%, 18 years)] | |

Issue price of the bonds | $1,694,268 |

**3. Maturity 6 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%.:**

Interest payment = $1,900,000 x 12% x 6/12 = $114,000

Present value of interest payment | $880,277 |

[$114,000 x 7.72173 present value annuity factor (5%, 12 years)] | |

Present value of face value of the bonds payable | $1,166,429 |

[$1,900,000 x 0.61391 present value factor (5%, 12 years)] | |

Issue price of the bonds | $2,046,706 |

**4. Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%.:**

Interest payment = $1,900,000 x 12% x 6/12 = $114,000

Present value of interest payment | $1,956,136 |

[$114,000 x 17.15909 present value annuity factor (5%, 40 years)] | |

Present value of face value of the bonds payable | $269,895 |

[$1,900,000 x 0.14205 present value factor (5%, 40 years)] | |

Issue price of the bonds | $2,226,031 |

**5.**

**Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%.:**

*Stated rate and effective interest rate is same. So, No change in bond issue price*

*Thus, issue price of the bonds is $1,900,000*