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Homework answers / question archive / Calculate the issue price of a $1,500,000 bond issue and preparing the journal entries of the issuance and first years interest payments using the effective interest method

Calculate the issue price of a $1,500,000 bond issue and preparing the journal entries of the issuance and first years interest payments using the effective interest method

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Calculate the issue price of a $1,500,000 bond issue and preparing the journal entries of the issuance and first years interest payments using the effective interest method. The bonds are paid semiannually on Jun 30 and December 31.

The first is a 12 year, 8 percent bond issue with a market interest rate of 12 percent.

The second is a 12 year, 8 percent bond issue with a market interest rate of 6 percent.

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The first is a 12 year, 8 percent bond issue with a market interest rate of 12 percent.

The issue price is actually the present value of the bond, and the future value is the par value.
In a financial calculator input:
FV= 1500,000
Payment every period (6 months) = FV * bond rate / 2 = 1500,000*8%/2 = 60,000
Number of periods = 12 years * 2 = 24
Interest rate each period = 12% / 2 = 6%
Then by the calculator or EXCEL "= -PV(6%,24,60000,1500000)" we can calculate PV = $1,123,489.27.

The second is a 12 year, 8 percent bond issue with a market interest rate of 6 percent.

In a financial calculator input:
FV= 1500,000
Payment every period (6 months) = FV * bond rate / 2 = 1500,000*8%/2 = 60,000
Number of periods = 12 years * 2 = 24
Interest rate each period = 6% / 2 = 3%
Then by the calculator or EXCEL "= -PV(3%,24,60000,1500000)" we can calculate PV = $1,754,033.13.

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