Question: Black Company issued $300,000 of 10%, 5-year bonds at 108. Interest is paid annually, and the effective interest method is used for amortization. Assume that the market rate for similar investments is 8%. The bonds are issued on the date of the bonds.
What amount was received for the bonds? Edit
Answer: You need the PV, where the FV is 300,000, PMT is 30,000, N is 5, and R is 8%.
PV of bond = PMT[1/r - 1/r(1 + r)^n]+FV/(1 + r)^n
= 30,000*[1/0.08 - 1/0.08(1+0.08)^5 ] + 300,000/(1 + 0.08)^5
=$ 323,956.26 (Ans.) Edit
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