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
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