On January 1 2017 Swifty Corporation issued eightyear bonds

On January 1, 2017, Swifty Corporation issued eight-year bonds with a face value of $6050000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31. The bonds were sold to yield 10%.

Table values are:

Present value of 1 for 8 periods at 8% 0.540

Present value of 1 for 8 periods at 10% 0.467

Present value of 1 for 16 periods at 4% 0.534

Present value of 1 for 16 periods at 5% 0.458

Present value of annuity for 8 periods at 8% 5.747

Present value of annuity for 8 periods at 10% 5.335

Present value of annuity for 16 periods at 4% 11.652

Present value of annuity for 16 periods at 5% 10.838

The issue price of the bonds is (please show your calculations)

a. $5442096.

b. $6048548.

c. $5407490.

d. $5393696.

Solution

Use PV of $1 table for principal Use PV of $1 ordinary table for interest where n= 5% t= 16 years Calculation of issue price of bonds principal 6,050,000 * 0.458 = 2770900.00 interest 6,050,000*4%= 242000 242,000 * 10.838 = 2622796 issue price of bonds 5393696.00 hence option d is the correct answer