Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31. The current market rate is 10%; therefore, the bonds will be issued at face value. I need help calculating the issue price of the bonds given interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31. The current market rate is 10%; therefore, the bonds will be issued at face value. I need help calculating the issue price of the bonds given interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.1AP
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Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31. The current market rate is 10%; therefore, the bonds will be issued at face value.
I need help calculating the issue price of the bonds given interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
![Factors that Affect the Bond Issue Price
Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31.
The current market rate is 10%; therefore, the bonds will be issued at face value.
Required:
1. For each of the following situations, indicate whether you believe the company will receive a premium on the bonds or will issue them
at a discount or at face value.
a. Interest is paid semiannually instead of annually.
Face value v
b. Assume interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
Premium
2. For each situation in part (1), prove your statement by determining the issue price of the bonds given the changes in (a) and (b). If
>
required, round all calculations to the nearest dollar.
Here are some time value of money factors:
Present value of an annuity, n=10, i=8%, PV=6.71008
Present value of an annuity, n=20, i=5%, PV=12.46221
Present value of a single amount, n=10, i=8%, PV=0.46319
Present value of a single amount, n=20, i=5%, PV=0.37689
Proof: Bond Price
а.
500,000
b.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F652eda4a-07c7-446c-baaa-e1ffddd9731f%2Fef813c69-2b66-45b6-92db-5cbaae427d80%2Fcavj1o_processed.png&w=3840&q=75)
Transcribed Image Text:Factors that Affect the Bond Issue Price
Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31.
The current market rate is 10%; therefore, the bonds will be issued at face value.
Required:
1. For each of the following situations, indicate whether you believe the company will receive a premium on the bonds or will issue them
at a discount or at face value.
a. Interest is paid semiannually instead of annually.
Face value v
b. Assume interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
Premium
2. For each situation in part (1), prove your statement by determining the issue price of the bonds given the changes in (a) and (b). If
>
required, round all calculations to the nearest dollar.
Here are some time value of money factors:
Present value of an annuity, n=10, i=8%, PV=6.71008
Present value of an annuity, n=20, i=5%, PV=12.46221
Present value of a single amount, n=10, i=8%, PV=0.46319
Present value of a single amount, n=20, i=5%, PV=0.37689
Proof: Bond Price
а.
500,000
b.
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