Question

Brief Exercise 9-64(Appendix 9A) Bond Issue Price

Objective 8(Appendix 9A) Calculate the market price of long-term debt using present value techniques.

On January 1, 2020, Ruby Inc. issued 3,000 $1,000 par value bonds with a stated rate of 6% and a 10-year maturity. Interest is payable semiannually on June 30 and December 31.

Required:

1. What is the issue price if the bonds are sold to yield 8%? (Note: Round to nearest dollar.)

Brief Exercise 9-65(Appendix 9A) Bond Issue Price

Objective 8(Appendix 9A) Calculate the market price of long-term debt using present value techniques.

On January 2, 2020, Nelson Construction issued 3,500 of $1,000 par value bonds with a stated rate of 8%, maturing in 10 years. Interest is payable semiannually on June 30 and December 31.

Required:

1. What is the issue price if the bonds are sold to yield 6%? (Note: Round to nearest dollar.)

Answer 1

Present Value of a bond (semi annually)			Amount in dollars
Year	Semi Annual Payments	Discounting Factor @4%	Present Value
Jun-20	30	0.961538462	28.84615385
Dec-20	30	0.924556213	27.73668639
Jun-21	30	0.888996359	26.66989076
Dec-21	30	0.854804191	25.64412573
Jun-22	30	0.821927107	24.6578132
Dec-22	30	0.790314526	23.70943577
Jun-23	30	0.759917813	22.7975344
Dec-23	30	0.730690205	21.92070615
Jun-24	30	0.702586736	21.07760207
Dec-24	30	0.675564169	20.26692506
Jun-25	30	0.649580932	19.48742795
Dec-25	30	0.62459705	18.73791149
Jun-26	30	0.600574086	18.01722258
Dec-26	30	0.577475083	17.32425248
Jun-27	30	0.555264503	16.65793508
Dec-27	30	0.533908176	16.01724527
Jun-28	30	0.513373246	15.40119738
Dec-28	30	0.493628121	14.80884363
Jun-29	30	0.474642424	14.23927272
Dec-29	1030	0.456386946	470.0785546
		Total	864.0967366
	Value of 3000 bonds	2592290.21
		(864.0967*3000)

Present Value of a bond (semi annually)
Year	Semi Annual Payments	Discounting Factor @3%	Present Value
Jun-20	40	0.970874	38.83495
Dec-20	40	0.942596	37.70384
Jun-21	40	0.915142	36.60567
Dec-21	40	0.888487	35.53948
Jun-22	40	0.862609	34.50435
Dec-22	40	0.837484	33.49937
Jun-23	40	0.813092	32.52366
Dec-23	40	0.789409	31.57637
Jun-24	40	0.766417	30.65667
Dec-24	40	0.744094	29.76376
Jun-25	40	0.722421	28.89685
Dec-25	40	0.70138	28.0552
Jun-26	40	0.680951	27.23805
Dec-26	40	0.661118	26.44471
Jun-27	40	0.641862	25.67448
Dec-27	40	0.623167	24.92668
Jun-28	40	0.605016	24.20066
Dec-28	40	0.587395	23.49578
Jun-29	40	0.570286	22.81144
Dec-29	1040	0.553676	575.8228
		Total	1148.775
	Value of 3000 bonds	4020712
		(1148.775*3500)