Williams Company plans to issue bonds with a face value of $600,000 and a coupon rate of 8 percent. The bonds will mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds are sold on January 1 of this year. Determine the issuance price of the bonds assuming an annual market rate of interest of ____.

The issuance cost of bonds is the sum the obliged substance raised through the issue of legally binding proclamation called bonds. The cost of securities relies on the assumed worth, time frame, the coupon rate and the market rate.

Coming up next are three general standards regarding bonds issue cost:

On the off chance that the coupon pace of the security is equivalent to the market loan fee, at that point the security is said to be given at standard.
On the off chance that the coupon pace of the security is more prominent than the market financing cost, at that point the security is said to be given at premium.
On the off chance that the coupon pace of the security is lower than the market loan cost, at that point the security is said to be given at rebate.

In the current case, both the coupon rate and the market premium are 8% and are equivalent. Thus, the issue cost of bonds is equivalent to the standard worth. That is $600,000.

Parrain Parrain · Answer 2 · 2025-03-26T12:55:45-04:00

Based on the face value of the bond and the prevailing market interest rate, the issuance price of the bond is $600,000.

The issuance price of a bond:

Is less than the face value if the coupon rate is less than the market rate
Is more than the face value if coupon rate is more than market rate
Is the same as the face value when the coupon rate is equal to the market rate

In this case, the coupon rate and the market rate are both 8% which means that the issuance price will be the same as the face value of $600,000.

In conclusion, the issuance price is $600,000.

Note: Question states that market rate is 8%.

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