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View History Bookmarks Window Help 23% D Sat 5:21 PM a a edugen.wileyplus.com eyPLUS WilleyPLUS: MyWileyPLUS I Help I Contact Us I Wi Kieso, Intermediate Accounting, 16e INTERMEDIATE ACCOUNTING I& II (310/311 Gradebook ORION Downloadable eTextbook CALCULATOR FULL SCREEN PRINTER VERSION ·BACK Brief Exercise 14-1 Windsor Corporation issues $630,000 of 9% bonds due in 9 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10% Compute the issue price of thie bonds. (Round present value factor calculations to 5 decinal places, eg. ?.Si 24 and the final answer to 0 decimal places eg. 58,971.) Issue price of the bonds Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT Question Attempts: o of 4 used SAVE FOR LATER SUBMIT ANSWER 5 delete 0Explanation / Answer
Issue Price of Bonds = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)
Where Cupon Amount = ($630,000 * 9%) * 1/2
= $56,700 * 1/2
= $28,350
Why did we take 1/2?
As compounding is semi annually
Redemption Amount = $630,000
r or Yield for 6 months = 10%/2
= 5%
n or periods = 9*2
= 18
As compounding is semi annually period will be 9*2 = 18
Present Value of Annuity Factor (5% ,18) = 11.68957
Present Value of Interest Factor (5% ,18) = 0.41552
Therefore
Issue Price of Bonds = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)
Issue Price of Bonds = $28,350 *Present Value of Annuity Factor (5% ,18) + $630,000 * Present Value of Interest Factor (5% ,18)
Issue Price of Bonds = $28,350 * 11.68957 + $630,000 * 0.41552
Issue Price of Bonds = $331,399 + $261,778
Issue Price of Bonds = $593,177
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