Question

In: Accounting

Seaside issues a bond that has a stated interest rate of 7%, face amount of $40,000,...

Seaside issues a bond that has a stated interest rate of 7%, face amount of $40,000, and is due in 6 years. Interest payments are made semi-annually. The market rate for this type of bond is 10%. What is the issue price of the bond? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Multiple Choice

  • $62,274.

  • $34,683.

  • $65,914.

  • $40,000.  

Solutions

Expert Solution

Answer:

Option B: $ 34,683

Explanation:

Present value of bond = Present value of face value + Present value of interest

= [40000 * PVF (5%, 12 years)] + [1400 * PVAF (5%, 12 years)]

= (40000 * 0.5568) + (1400 * 8.8633)

= 22272 + 12411

= $ 34,683

PVAF table:

PVF table:

Hence, option 'B' is correct, and rest all are incorrect.

In case of any doubt or clarification, feel free to come back via comments.

ekkarill92 answered 2 years ago
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