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On January 1, 2013, Jason Company issued $5.1 million of 11-year bonds at a 11% stated interest...

Question:

On January 1, 2013, Jason Company issued $5.1 million of 11-year bonds at a 11% stated interest rate to be paid annually. The following present value factors have been provided:

Time Period Interest PV of $1 PV of a $1 Annuity
11 11% 0.317 6.207
11 9% 0.388 6.805
11 13% 0.261 5.687

What was the issuance price of the bonds if the market rate of interest was 9%?

A. $5,796,405.
B. $5,513,905.
C. $5,100,000.
D. $5,838,905.

What Is A Bond Issued At A Premium:

When bonds are issued to public markets, it is very rare that the proceeds equal the face value of the bonds. This is because the market rate is often different from the coupon rate. Wehn the market rate is below with coupon rate, bonds are issued at a premium.

Answer and Explanation:

Issuance proceeds of bond = Present value principal + Present value annuity

1. Present value of principal

=5,100,000*(PV11,9%)0.388

=$1,978,800

2....

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Bonds: Types, Characteristics and Issuing Procedures

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 7
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