Question

Wally, Inc. issues $100,000 of 5% bonds, due in 10 years, when the market rate of interest is 6%. Interest is paid semiannually on June 30 and December 31. The issue price of the bonds is:_________

a. $88,530
b. $92,561
c. $92,640
d. $107,795

Answer 1

b. $92,561

Step-by-step explanation:

Face Value = 100,000.00

Term (in years) = 10

Total no. of interest payments = 20

Market Rate = 6.0% / 2 = 3.0%

Coupon Rate = 5.0%/2 = 2.5%

Amount PV factor Present Values

PV of Face Value of $100,000 0.553675754 $55,367.58

PV of Interest payment $2,500 14.87747486 $37,193.69

Issue Price of Bonds $92,561.26