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on January 1, year 2, London corporation issued a 10 year $500,000, 8%, bonds payable that...

on January 1, year 2, London corporation issued a 10 year $500,000, 8%, bonds payable that pays interest semi-annually on July 1 and January 1. on January 1, year 2, it is determined that the market rate of bond was 10%. what is the amount of cash received from the insurance of the 8% bond at the market rate of 10%?

Solutions

Expert Solution

The amount of cash received from the issuance of the 8% bond is calculated as follows:-

Table Values are based on
n= 20
i= 5%
Cash Flow Amount Table Value Present Value
Interest payments($500,000*8%*6/12)                 20,000         12.46221          249,244.20
Maturity Value              500,000         0.376889          188,444.74
Issue Price of the Bonds          437,688.94

For interest payments, we use the PVIFA table to calculate the table value (20 periods, 5%)

For Maturity value, we use the PVIF table to calculate the table value (20 periods, 5%)

Based on the information available, the issue price of the bonds is $437,689 (Rounded).

Please let me know if you have any questions via comments and all the best :)

ekkarill92 answered 1 year ago
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