Bond Issue--Discount
| Issue one 20 yr bond, face value $1,000, stated rate is 10%, Market rate is 11% |
| Cash | $920.37 |
| Unamortized Bond Discount | $79.63 |
| Bonds Payable | $1,000 |
To determine the amount of cash to be received you must find the present value of the $1,000 the firm has promised to pay 20 years from now plus the present value of the interest payments it will make over the same period. Assuming that interest is paid once a year, the factors from the present value tables (single sum and annuity) (11%, 20 yrs) are as follows:
| PV of $1 | 0.12403 |
| PV of an Annuity of $1 | 7.9633 |
Return to Liabilities Discussion
Professor Omer