Having trouble figuring out how to do this problem for my accounting homework.. any help would be greatly appreciated..the information given goes as follows..

On 1/1/08 you issue $400,000 of 7%, 10 year bonds that pay intrest semiannually. The Market intrest rate is 8%

The problem says:

What is the present value of the bonds at issuance? (how much will you receive from the buyers of the bonds?)

Ok, you will need 4 items to plug into a formula for calculating the bond price.

1) cash flow (CF). The bond pays semi-annually. So, each payment is 400,000*(.07/2) = 14,000
2) yield rate or interest rate (i). The annual rate is given as 8%, so the semi-annual rate is 4%.
3) Payment at maturity (M). This is simply the issue ammount of 400,000.
4) number of payments (n). Semi-annually over 20 years would be 40

So (sorry, but its hard to write formulas in this site):
Bond price = (CF) * (1 - (1/(1+i)^n)/i) + (M) * (1/(1+i)^n)

Investopedia period com has this formula plus a nice explanation. (I am not allowed to post the link to the site).
Google "formula, yield to maturity"

To calculate the present value of the bonds at issuance, you need to determine the present value of the future cash flows associated with the bonds. In this case, the future cash flows are the semi-annual interest payments and the principal repayment at maturity.

Here are the steps to calculate the present value:

1. Determine the interest payment: The bonds have a 7% coupon rate, which means the annual interest payment is $400,000 * 7% = $28,000. Since the interest is paid semiannually, the semiannual interest payment is $28,000 / 2 = $14,000.

2. Determine the number of periods: The bonds have a 10-year term, and interest is paid semiannually. So the total number of periods is 10 years * 2 = 20 periods.

3. Determine the discount rate: The market interest rate is given as 8%. Since the interest is paid semiannually, the semiannual interest rate is 8% / 2 = 4%.

4. Calculate the present value of the interest payments: To calculate the present value of the semiannual interest payments, you can use the present value of an ordinary annuity formula. The formula is:

Present Value = PMT * [1 - (1 + r)^-n] / r

Where PMT is the cash flow per period, r is the interest rate per period, and n is the total number of periods.

In this case, PMT = $14,000, r = 4%, and n = 20. Plug these values into the formula and calculate the present value of the interest payments.

5. Calculate the present value of the principal repayment: The principal repayment is the face value of the bonds, which is $400,000. To calculate its present value, you can use the present value formula:

Present Value = FV / (1 + r)^n

Where FV is the future value of the cash flow, r is the interest rate per period, and n is the total number of periods.

In this case, FV = $400,000, r = 4%, and n = 20. Plug these values into the formula and calculate the present value of the principal repayment.

6. Add the present values of the interest payments and principal repayment to get the present value of the bonds at issuance.

Please note that the calculations provided here are examples and may vary depending on specific assumptions used in the problem. It is always a good idea to clarify any specific instructions or assumptions given in the assignment to ensure accurate calculations.