Buchanan
Corporation issues $500,000 of 11% bonds that are due in 10 years and pay
interest semi-annually. At the time of issue, the market rate for such bonds is
10%. Calculate the bonds’ issue price.
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Present
value of the principal
|
|
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$500,000 X .37689
|
$188,445
|
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Present
value of the interest payments
|
|
|
$27,500 X 12.46221
|
342,711
|
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Issue price
|
$531,156
|
|
Excel formula: =PV(rate,nper,pmt,fv,type)
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Using a financial
calculator:
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||
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PV
|
?
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Yields $ 531,156
|
|
I
|
5%
|
|
|
N
|
20
|
|
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PMT
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$ (27,500)
|
|
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FV
|
$ (500,000)
|
|
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Type
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0
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|
