GMAT Corporation is planning to issue bonds with a face value of $251,000 and a coupon...

GMAT Corporation is planning to issue bonds with a face value of $251,000 and a coupon rate of 4 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Determine the issuance price of the bonds assuming an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)

Issue Price:

Solutions

Expert Solution

*Bonds issue price is calculated by ADDING the:*
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate	Face Value	$ 251,000.00
Market Rate	6.00%	3.00%	Term (in years)	10
Coupon Rate	4.00%	2.00%	Total no. of interest payments	20

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 251,000.00	at	3.00%	Interest rate for	20	term payments
PV of $1	0.553676
PV of	$ 251,000.00	=	$ 251,000.00	x	0.553676	=	$ 138,973	A

Interest payable per term	at	2.000%	on	$ 251,000.00
Interest payable per term	$ 5,020.00

PVAF of 1$	for	3.0%	Interest rate for	20	term payments
PVAF of 1$	14.87747
PV of Interest payments	=	$ 5,020.00	x	14.87747	=		$ 74,685	B

				Bond Value (A+B)			$ 213,658

Issue Price =$213,658

The final answer may vary due to decimal place in PV factor.

If answer do not match, leave a comment so that I can help.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Claire Corporation is planning to issue bonds with a face value of $220,000 and a coupon...

Claire Corporation is planning to issue bonds with a face value of $220,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 16 percent. (FV of $1, PV of $1,...

Serotta Corporation is planning to issue bonds with a face value of $340,000 and a coupon...

Serotta Corporation is planning to issue bonds with a face value of $340,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1,...

Park Corporation is planning to issue bonds with a face value of $700,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $700,000 and a coupon rate of 7.5 percent. The bonds mature in 6 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and...

Park Corporation is planning to issue bonds with a face value of $630,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $630,000 and a coupon rate of 7.5 percent. The bonds mature in 4 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and...

Park Corporation is planning to issue bonds with a face value of $2,400,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $2,400,000 and a coupon rate of 9 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 7.5 percent. (FV of $1, PV of $1, FVA of $1, and...

Park Corporation is planning to issue bonds with a face value of $3,500,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $3,500,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8.5 percent. 1. Prepare the journal entry to record the issuance of...

Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon...

Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1,...

Park Corporation is planning to issue bonds with a face value of $650,000 and a coupon...

Park Corporation is planning to issue bonds with a face value of $650,000 and a coupon rate of 7.5 percent. The bonds mature in 8 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and...

Serotta Corporation is planning to issue bonds with a face value of $410,000 and a coupon...

Serotta Corporation is planning to issue bonds with a face value of $410,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. 1.) Provide the journal entry to...

Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon...

Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1,...

Subjects