 Ask Remember Me? confused_college_student Posts: 8, Reputation: 2 New Member #1 Feb 7, 2008, 07:31 PM
Issue Price of a Bond?
Donaldson Company issued \$5,000 of 10-year bonds paying 10% annual interest. The current market rate of interest on comparable issues is 12%. What is the issue price of the bonds? morgaine300 Posts: 6,561, Reputation: 276 Uber Member #2 Feb 10, 2008, 12:24 AM
For the reason just stated in my answer to your other question, no. It's the present value of the bond, plus the present value of the interest payments.

This is a difficult one to explain in a forum of this type. Especially since you could be using charts, a financial calculator, equations, or Excel to figure this out. But you will need to calculate it, and you'll need to learn how to do it. (I see you have several questions and I haven't looked at them all, or the answers. So I might be saying something stupid here. :-))

I'll give you a list of steps, but it's too lengthy to explain each separate step. I'd suggest asking separate questions so that you can get it down step-by-step.

1. Figure out the actual interest payments based on the contract rate.
2. Get the present value of the bond face value. (single payment)
3. Get the present value of the interest payment you figured in (1). (annuity)
4. Add 2 & 3 together.

For 2 & 3, how you do this depends on the method you're using. But you will need to use the market rate for this part. This is a common confusion. Use the contract rate to get the actual interest payment for step 1. But when you figure the present values, always use the market rate.

 Question Tools Search this Question Show Printable Version Email this Page Search this Question: Advanced Search