Sharmer Company Issues 5%, 5-Year Bonds with a Par Value

question 111

Multiple Choice

Sharmer Company issues 5%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following factors: $\begin{array}{rlll}&&\text { Present Value of an }\\n=&i=&\text { Annuity }&\text { Present value of } \mathbb{\$1}\\5 & 5 \% & 4.3295 & 0.7835 \\10 & 3 \% & 8.7521 & 0.7812 \\5 & 6 \% & 4.2124 & 0.7473 \\10 & 3 \% & 8.5307 & 0.7441\end{array}$

• A)$1,213,255
• B)$957,355
• C)$1,000,000
• D)$786,745
• E)$1,250,000

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Definitions:

Parol Evidence Rule

A legal principle that prevents parties from using oral or extrinsic evidence to contradict or vary the terms of a written contract.

Condition Precedent

In contract law, an act or promise that must take place or be fulfilled before the other party is obligated to perform his or her part of the agreement.

Enforceable

Describes a legal agreement or contract that is valid and therefore can be upheld and enforced in a court of law.