A Company Issues Bonds with a Par Value of $800,000

question 174

Essay

A company issues bonds with a par value of $800,000 on their issue date. The bonds mature in five years and pay 6% annual interest in two semiannual payments. On the issue date, the market rate of interest is 8%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
$\begin{array}{|l|l|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756 \\\hline\end{array}$

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