1. On January 1, Guerin Company issues $300,000 of 10-year bonds with a stated rate of 8%. The market rate is 7%. Interest is paid annually.

The present value of 1 for 10 periods at 7% is .51 and at 8% is .46.

The present value of an ordinary annuity of 1 for 10 periods at 7% is 7.02 and at 8% is 6.71.

The selling price of the bonds can be computed as

1. (300,000 x .08 x 6.71) + (300,000 x .46)
2. (300,000 x .07 x 6.71) + (300,000 x .46)
3. (300,000 x .08 x 7.02) + (300,000 x .51)
4. (300,000 x .07 x 7.02) + (300,000 x .51)