During the course of your Chapter 11 studies, you should have noticed that bonds can be sold at a discount (less than 100% of face value), at par (equal to 100% of face value), or a premium (greater than 100% of face value). The important question is how is the sell price determined? What causes the sell price to be at a discount or a premium and why does the value change over time? To address this issue, I would like you to address the following problem: On January 1, Brothers Corporation issues $10,000,000 of 6%, 15 year bonds, with interest paid semi- annually. The market rate of interest is 8%. Before we calculate the price, let's answer a few basis questions which will be important in determining the price. 1. What is the face amount of the bond offering? 2. What will the actual semi-annual interest payment be? 3. What interest rate is used to compute the present value? Face interest rate or market rate? 4. How many interest periods will there be in this bond offering? 5. Based upon the facts provided, will these bonds be sold at a "discount", "par" or "premium"? Hint: Look at the interest rate relationship. This will help you anticipate your answer! The face interest rate of bond (9%) is less than market rate interest (10%), the bond will be trading at discount Calculate the issue price and bond proceeds of the bond using the present value method? As you should recall from the notes, text and videos, the present value (price) of a bond is based upon the present value of the repayment of the bond in the future and the present value of the future interest payments. Show ALL YOUR WORK ||