To Find the Issue Price Of A Bond

Issue Price of a Bond Has Two Components

• PV of Face Value of Bond
• PV of Annuity Coupon Payments

Your company issued a bond for $800,000 with a coupon rate of 12%, which were 8 year bonds that paid semiannual interest payments. The market interest rate at the time is 10%.

Remember, you will only use your coupon rate one time to calculate your initial coupon payment
And you must divide your coupon rate by two to reflect the semiannual payments

Coupon payments = 12%/2 * 800,000 = 48,000
PV Factor of Annuity @ 16 periods and 5% = 10.8378

Face Value = 800,000
PV Factor of $1 @ 16 periods and 5%

= 886,694

Journal Entry

Cash 886,694
Premium on Bonds Payable 86694
Bonds Payable 800,000