7252569-MIdterm-1 (dragged) 31

7252569-MIdterm-1 (dragged) 31 - 29,842 Selling price of...

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Kieso, Weygandt, Warfield, Young, Wiecek Intermediate Accounting, Eighth Canadian Edition 14-15 ILLUSTRATION 14-1 INTEREST RATES AND BOND PRICES Market Interest Bonds Sold Rate At Bond (1) 10% Premium Stated Issued Interest Rate (2) 12% Face Value 12% ( 3 ) 1 5 % D i s c o u n t EXAMPLE: Three-year bonds are issued at face value of $100.000 and a stated rate of interest of 12 %. (1) Bonds are issued to yield 10%. Present value of principal = $100,000 x (PVIF 10%, 3yrs ) = $100,000 x .75132 = $75,132 Present value of interest payments = $12,000 x (PVIFA 10%,3yrs ) $12,000 x 2.48685 =
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Unformatted text preview: 29,842 Selling price of bonds (premium) $104.974 (2) Bonds are issued to yield 12%. Present value of principal = $100,000 x (PVIF 12%, 3yrs ) = $100,000 x .71178 = $71,178 Present value of interest payments = $12,000 x (PVIFA 12%,3yrs ) $12,000 x 2.40183 = 28,822 Selling price of bonds (par) $100.000 (3) Bonds are issued to yield 15%. Present value of principal = $100,000 x (PVIF 15%, 3yrs ) = $100,000 x .65752 $65,752 Present value of interest payments = $12,000 x (PVIFA 15%,3yrs ) $12,000 x 2.28323 = 27,399 Selling price of bonds (discount) $93,151...
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