Question

On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with a face amount of $37 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. (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.)

Required:
Determine the price of the bonds at January 1, 2018. (Enter your answer in whole dollars.)

Answer 1

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	$ 37,000,000.00
Market Rate	12.00%	6.00%		Term (in years)	10
Coupon Rate	10.00%	5.00%		Total no. of interest payments	20

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 37,000,000.00	at	6.0%	Interest rate for	20	term payments
PV of $1	0.31180473
PV of	$ 37,000,000.00	=	$ 37,000,000.00	x	0.311804727	=	$    11,536,774.895	A
Interest payable per term	at	5.0%	on	$ 37,000,000.00
Interest payable per term	$    1,850,000.00
PVAF of 1$	for	6.0%	Interest rate for	20	term payments
PVAF of 1$	11.46992122
PV of Interest payments	=	$       1,850,000.00	x	11.46992122	=		$    21,219,354.254	B
				Bond Value (A+B)			$      32,756,129.

Answer

Issue price of Bond =$ 32,756,129