On January 2, HONDA Motors, Inc

Accounting Oct 15, 2020

On January 2, HONDA Motors, Inc. issued 1,000, $1,000 bonds to finance a new showroom. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 7% interest and the bonds are due December 31, Year 5. How much is the selling price of the bonds? *

Expert Solution

Computation of Selling Price of Bonds using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Selling Price = ?

Rate = 7%

Nper = 5 years

PMT = $1,000*6% = $60

FV = $1,000

Substituting the values in formula:

=-pv(7%,5,60,1000)

PV or Selling Price = $959

So, Selling Price of Bonds = $959*1,000 = $959,000

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