Question

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar risk and maturity is 8%. Interest will be paid by Mufala semiannually. What is the issue price of the bonds

Answer 1

Answer:

the issue price of the bond is $8,640,999

Explanation:

The computation of the issue price of the bond is shown below:

Particulars                       Amount       PV factor   Present value  

Semi-annual Interest     $300,000     13.59033  $4,077,099  

Principal                         $10,000,000  0.45639  $4,563,900  

Issue price of the bonds                                        $8,640,999

Therefore the issue price of the bond is $8,640,999