On January 1, a company issued $19,383,400 of 12 year bonds with a coupon rate of 7%, payable semi-annually on June 30 and December 31. The market rate of interest on the issuance date was 5%. What was the issuance price of the bonds?

On January 1, a company issued $19,383,400 of 12 year bonds with a coupon rate of 7%, payable semi-annually on June 30 and December 31. The market rate of interest on the issuance date was 5%. What was the issuance price of the bonds?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 13Q: A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market...

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Question

On January 1, a company issued $19,383,400 of 12 year bonds with a coupon rate of 7%, payable semi-annually on June 30 and
December 31. The market rate of interest on the issuance date was 5%.
What was the issuance price of the bonds?
Provide your answer to the nearest whole dollar (no decimals).
O $22,850,118.00
O22,850,118
22,850,119
O 22850118
O 22,850,117
O $22,850,118

Expert Solution

Step 1

Compound = 2 (semiannually)

Time = t = 12 * 2 = 24

Coupon rate = 7/2 = 3.5%

Interest rate = r = 5/2 = 2.5%

Face value = fv = $19,383,400

Coupon = c = fv * coupon rate = 19,383,400 * 0.035 = $678,419

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