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($500,0008%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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