Question

On January 1, 2021, Anne Teak Furniture issued $100,000 of 12% bonds, dated January 1. Interest is payable semiannually on June 30 and December 31. The bonds mature in 4 years. The annual market rate for bonds of similar risk and maturity is 14%. What was the issue price of the bonds? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

a. $89,460

b. $95,460

c. $94,029

d. $120,942

Answer #1

Answer | |||

Amount |
PV factor 7% | Present value | |

Semiannual interest | 6000 | 5.97130 | $ 35,828 |

Principal | 100000 | 0.58201 | $ 58,201 |

Total |
$
94,029 |
||

Option C $94,029 is correct |
|||

PV factor 6%: | |||

Semiannual interest | 5.97130 | (1-(1.07)^-8)/0.07 | |

Principal | 0.58201 | 1/1.07^8 | |

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