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On January 1, Jason Company issued $4
On January 1, Jason Company issued $4.2 million of 9-year bonds at a 9% stated interest rate to be paid annually. The following present value factors have been provided:
|
Time Period |
Interest |
PV of $ |
PV of an Annuity |
|
9 |
9% |
0.460 |
5.995 |
|
9 |
7% |
0.544 |
6.515 |
|
9 |
11% |
0.391 |
5.537 |
Calculate the issuance price if the market rate of interest is 11%.
If a student uses Excel or a financial calculator to answer the problem, choose the closest answer as rounding will cause slightly different answers.
Group of answer choices
$4,200,000
$3,777,686
$3,735,186
$3,727,686
Expert Solution
The computation of the issuance price is shown below:-
The annual interest on bond = $4,200,000 * 9%
= $378,000
| Particulars | Amount | PVIF | Present value of bonds |
| Present value of a bond's interest payments | $378,000 |
5.537 (Cumulative factor of 9 periods at 11%) |
$2,092,986 |
| Present value of a bond's maturity amount | $4,200,000 |
0.391 (Present valiue factor of 9 periods at 11%) |
$1,642,200 |
| Issuance price | $3,735,186 |
Therefore the correct option is $3,735,186
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