On January 1, 2017, Concord Corporation issued eight-year bonds with a face valu

Question

On January 1, 2017, Concord Corporation issued eight-year bonds with a face value of $6070000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

The issue price of the bonds is

Present value of 1 for 8 periods at 10%          0.467 Present value of 1 for 8 periods at 12%          0.404 Present value of 1 for 16 periods at 5%        0.458 Present value of 1 for 16 periods at 6%        0.394 Present value of annuity for 8 periods at 10%            5.335 Present value of annuity for 8 periods at 12%            4.968 Present value of annuity for 16 periods at 5%          10.838 Present value of annuity for 16 periods at 6%          10.106

Explanation / Answer

Face Value = $6,070,000

Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5% * $6,070,000
Semiannual Coupon = $303,500

Annual Interest Rate = 12%
Semiannual Interest Rate = 6%

Time to Maturity = 8 years
Semiannual Period to Maturity = 16

Issue Price = $303,500 * VPVA of $ (6%, 16) + $6,070,000 * PV of $1 (6%, 16)
Issue Price = $303,500 * 10.106 + $6,070,000 * 0.394
Issue Price = $5,458,751

So, the issue price of the bond is $5,458,751

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