Question: Schmidt, Inc. issues a $10 million bond with a 6% coupon rate, 4year maturity, and annual interest payments when market interest rates are 7%. Time

Schmidt, Inc. issues a $10 million bond with a 6% coupon rate, 4year maturity, and annual interest payments when market interest rates are 7%. Time value of money factors are listed below.

PV of $1 @ 7% for 4 years = 0.7629

PV ordinary annuity @ 7% for 4 years = 3.38721*

Solutions are computed using present value tables. Due to rounding errors, the solution may be slightly different if a calculator is used.

What is the initial carrying value of the bonds?

$9,400,000

$10,338,721

$10,000,000

$9,661,326

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