Question

In: Accounting

On December 31, 2019, Repsol Corp issued $1,400,000, 9%, 5-year bonds. Interest is payable semiannually on...

On December 31, 2019, Repsol Corp issued $1,400,000, 9%, 5-year bonds. Interest is payable semiannually on June 30 and December 31. The corporation uses the effective interest method of amortizing bond premium or discount. Using a financial calculator or excel, estimate the issue price of the bonds under the following three assumptions: (1) Market Rate is 9%
(2) Market Rate is 8%   

Solutions

Expert Solution

1.) Market rate 9%
Amount $
Present of value of Maturity         901,499 =PV(0.045,10,0,-1400000)
Add: Present value of Interest payment         498,501 =PV(0.045,10,-63000,0)
Issue price of bond      1,400,000
*63,000 ( 1,400,000 x 9% x 1/2 )
2.) Market rate 8%
Amount $
Present of value of Maturity         945,790 =PV(0.04,10,0,-1400000)
Add: Present value of Interest payment         510,986 =PV(0.04,10,-63000,0)
Issue price of bond      1,456,776
*63,000 ( 1,400,000 x 9% x 1/2 )
3.) Assuming Market rate 10%
Amount $
Present of value of Maturity         859,479 =PV(0.05,10,0,-1400000)
Add: Present value of Interest payment         486,469 =PV(0.05,10,-63000,0)
Issue price of bond      1,345,948
*63,000 ( 1,400,000 x 9% x 1/2 )

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