DEF Company will issue $2,000,000 in 10%, 10-year bonds when the market rate of interest is 12%. Interest is paid semiannually. Required: Determine how much cash DEF Company should realize from the bond issue-i.e. what is the selling or issue price of the bonds. Solution Bond face value = $2,000,000, period (n) = 20, Interest rate (i) = 12%/2 = 6% Semiannual interest = $2,000,000 * 10% * 6/12 = $100,000 PV: $2,000,000 * 0.31180 (PV of 6% at 20th year) = $623, 600 PVA: $100,000 * 11.46992 (cumulative PV of 6% for 20 year) = $1, 146, 992 Bond Selling/Issue price = $1.770, 592