Question

Calculating Bond Issue Price

On December 31, 2018, University Theatres issued $500,000 face value of bonds. The stated rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in 15 years.

Required:

a. Assuming the market rate of interest is 6%, calculate at what price the bonds are issued.
$

b. Assuming the market rate of interest is 10%, calculate at what price the bonds are issued.
$

Answer 1

SOLUTION

(A) n = 3% (6%/2), t=30 (15 years *2)

Interest expense = 500,000*8%/2 = $20,000

Bond issue price-

Particulars	Calculation	Amount ($)
Principal	500,000*.41199	205,995
Interest	20,000*19.60044	392,009
Bonds issue price		598,004

(B) n = 5% (10%/2), t=30 (15 years *2)

Interest expense = 500,000*8%/2 = $20,000

Bond issue price-

Particulars	Calculation	Amount ($)
Principal	500,000*.23138	115,690
Interest	20,000*15.37245	307,449
Bonds issue price		423,139​