Respuesta :
The selling price of bond is 1324958.
As per the given data,
we need to find bond's issue (selling) price by assuming the given Present Value.
According to above question,
it is given that,
Marwick Corporation issues 12%, 5 year bonds with a par value of $1,230,000 and semiannual interest payments.
On the issue date, the annual market rate for these bonds is 10%.
Present Value of an Annuity is 3.6048 7.3601 3.7908 7.7217
The selling price (or market value) of a bond is the price of the futures contract that the owner of the bond will receive. Stated another way, the current selling price, present value, or market value of the bond = total annual interest payments PLUS the amount that will be received when the bond matures by both discounted by the current market interest rate . The sum of these two present values = the market value or selling price of the bond.
Bond Valuation
Bond Face Value 1230000
Bond Interest rate 12.00%
Semiannual interest at 73800
123000*12%*6/12
Market Interest Rate (Yield rate) 10.00%
Bond tenure 5
Interest payments Semiannually
Table Values are based on
n (5*2) 10
I (10%/2) 5.00%
Cash Flows Table Value *Amount Present Value
Par (Maturity) value 0.6139* 1230000 755097.00
Interest (annuity) 7.7217* 73800 569861.46
Selling Price of the Bond 1324958
Therefore, the selling price of bond is 1324958.
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