In: Accounting
Brief Exercise 6-15
Bridgeport Inc. issues $2,119,100 of 11% bonds due in 10 years
with interest payable at year-end. The current market rate of
interest for bonds of similar risk is 12%.
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What amount will Bridgeport receive when it issues the bonds?
(Round factor values to 5 decimal places, e.g. 1.25124
and final answers to 0 decimal places, e.g.
458,581.)
Amount received by Bridgeport when bonds were issued |
Principal | 2,119,100 | ||||||
interest | 233101 | ||||||
Calculation of bond issue price | |||||||
Where | |||||||
i= | 12.00% | ||||||
t= | 10 years | ||||||
principal | * | PV of $1 at 12% for 10 yrs = | |||||
2,119,100 | * | 0.32197 | = | 682,287 | |||
interest | * | PV of ordinary annuity at 12%= | |||||
233101 | * | 5.65022 | = | 1,317,072 | |||
bond issue price | 1,999,359 | ||||||
so | |||||||
present value of the face amount | 682,287 | ||||||
present value of the semi-annual interest payments | 1,317,072 | ||||||
price received for bonds | 1,999,359 | answer | |||||