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Swirlie Company issued $2,000,000, 20 year, bonds on April 1st of 2017. The bonds are dated...

Swirlie Company issued $2,000,000, 20 year, bonds on April 1st of 2017. The bonds are dated January 1, 2017. The bonds pay 8% interest. The market rate on April 1st is 8% Required: How much will Swirlie receive when the bonds are issued?

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Answer #1

Calculation of price of bond:
Face value = $2,000,000
Interest rate 8%
Interest amount = $2,000,000 * 8% = $160,000

Present value of Interest during the life of bond:
PV = 160000 * PVAF 8% 20 years
PV = 160000 * 9.81814 = $1,570,902.4

Present value of principal amount:
PV = $2,000,000 * PVF 8% 20 year
PV = 200000 * 021455 = $429,100

Total = 1570902.4 + 429100 = $2,000,000.24
Here it is clear that when the interest rate and the market rate is same then the face value of bonds is the issue price of the bond.

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