A is corrent. The issue price of bonds is equal to the present value (PV) of the maturity value plus the PV of the interest annuity. The PV must be computed using the yield rate. The computation is| Amount | | PV Factor | | PV | | $1,000,000 | x | .386 | = | $386,000 | | 80,000 | x | 6.145 | = | 491,600 | | Total issue price | | | | $877,600 |
The interest amount above ($80,000) is the principal ($1,000,000) times the stated rate (8%).B is incorrect. The issue price of bonds is equal to the present value (PV) of the maturity value plus the PV of the interest annuity. The PV must be computed using the yield rate. The computation is| Amount | | PV Factor | | PV | | $1,000,000 | x | .386 | = | $386,000 | | 80,000 | x | 6.145 | = | 491,600 | | Total issue price | | | | $877,600 |
The interest amount above ($80,000) is the principal ($1,000,000) times the stated rate (8%).C is incorrect. The issue price of bonds is equal to the present value (PV) of the maturity value plus the PV of the interest annuity. The PV must be computed using the yield rate. The computation is| Amount | | PV Factor | | PV | | $1,000,000 | x | .386 | = | $386,000 | | 80,000 | x | 6.145 | = | 491,600 | | Total issue price | | | | $877,600 |
The interest amount above ($80,000) is the principal ($1,000,000) times the stated rate (8%).D is incorrect. The issue price of bonds is equal to the present value (PV) of the maturity value plus the PV of the interest annuity. The PV must be computed using the yield rate. The computation is| Amount | | PV Factor | | PV | | $1,000,000 | x | .386 | = | $386,000 | | 80,000 | x | 6.145 | = | 491,600 | | Total issue price | | | | $877,600 |
The interest amount above ($80,000) is the principal ($1,000,000) times the stated rate (8%). |
