Lopez Information Systems is planning to issue 10-year bonds. The going market rate for such bonds is 10.42 pe?

To answer this question you would need present value tables: http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf Look up the Percent and interest rate in the tables (present value of a single sum of $1 million) and present value of annuity for the interest payments (make sure it is semi annual- so multiply the periods by 2 to get number of periods, so take 10 years multiply by 2 to get 20 periods and 4%- thats 8% divided by two for semi annual payments). So use table 1- present value of single sum and table 3- present value of annuity (which are the interest payments). To begin the discussion, first we have to understand that this bond will be issued at a discount if the stated rate on the bonds will be 8% when the market rate is 10.42. Because the investors in the market will say to themselves, "why should I invest my money and earn 8%, when another company will pay me 10.42% for the money that I give them". So what will end up happening is that Lopez inc. will take less money (discount), lets say $900,000 from the investor but pay back $1 million at the end of the loan period (10 years). So that $100,000 discount will be charged as interest expense, because if you think about it lopez will pay back the $100,000 over the life of the bond. However the cash actually paid in interest will be 8% of 1,000,000. If the company wants to raise $1 million they should issue the bonds at the market rate, no question. This way there is no discount, and they will get $ 1 million free and clear. I need more specific questions. Your professor should have given you factors to work with. What textbook is this?