I am not sure how to solve this. Whispering Corporation issues $520,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%.Click here to view factor tables.Compute the issue price of the bonds. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)Issue price of the bonds $ [ ](Note: There are no graphs or diagrams in the image to describe.)

Answered: ssue price of the bonds %24

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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I am not sure how to solve this.

Whispering Corporation issues $520,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%.

Click here to view factor tables.

Compute the issue price of the bonds. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Issue price of the bonds $ [ ]

(Note: There are no graphs or diagrams in the image to describe.)

Expert Solution

Step 1

Solution:-

Face Value of Bonds = $520,000

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $520,000
Semiannual Coupon = 23,400

Time to Maturity = 10 years
Semiannual Period = 20

Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%

Issue Price of Bonds = $23,400 * PVA of $1 (5.00%, 20) + $520,000 * PV of $1 (5.00%, 20)
Issue Price of Bonds = $23,400 * 12.46221 + $520,000 * 0.37689

Issue Price of Bonds =$291,616+$195,983
Issue Price of Bonds = $487,599

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