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Asked Aug 26, 2019
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White side Corp issues $500,000 of 9% bond due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.

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Step 1

Calculate the present value of face value of bonds.

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Amount (S) Particulars Face value of bonds $500,000 x 0.37689 PV factor at a semiannual market rate of 5% for 20 periods Present value of face value of bonds $188.445

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Step 2

Calculate present value of semiannual interest payment.

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Amount (S) $22,500 Particulars Interest payable amount ($500,000 x (9% 2)) PV factor at a semiannual market rate of 5% for 20 periods Present value of interest payment x 12.46221 $280,400

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