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Unformatted text preview: er period:
$50,000,000 × 0.377 (from Table PV-1)
Pres ent value of future interes t pay ments :
$2,250,000 interes t pay ments ($50,000,000 × 9% × 1/2) for 20 periods ,
dis c ounted at 5% per period: ($2,250,000 × 12.462 (from Table PV-2)
Is s uanc e pric e res ulting in an effec tive s emiannual interes t rate of 5% $ 18,850,000 28,039,500
$ 46,889,500 b. Is s ued $50,000,000 fac e value, 9% , 10 y ear bonds at a pric e y ielding 5% effec tive s emiannual interes t
(approx . 10% annual rate).
c. The bonds s old at a dis c ount bec aus e the c oupon rate of interes t, 9% , was les s than the mark et rate of
interes t, 10% . Dis c ounting th e future c as h rec eipts from a 9% bond is s ued at 10% will res ult in a pres ent
value that is les s than the fac e amount of the bonds . Therefore, they will s ell at a dis c ount. http://ezto.mhecloud.mcg r aw- hill.com/hm_accounting .tpx?todo= pr intview 19/21...
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- Fall '08