Question

On January 1, year 1, Klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds. Round your answer to the nearest dollar. $93,643

Answer 1

91,000

Explanation:

Answer 2

Answer: $88700

Explanation:

Coupon interest = $100000*10% = $10000

To calculate the issue price we will have to discount all the coupon payments and the face amount using 12%.

To discount coupon payments we will use the formula of present value of ordinary annuity:

PV = PMT×(1-(1/(1+i)^n)/i

where;

PMT = coupon payment = $10000

i = Interest rate which is to be used to discount = 12%

n = no. or periods = 10 years

PV = $56502.23

And present value of face amount = $100000/(1.12)^10 = $32197.32

Issue price = $56502.23 + $32197.32

= $88699.55 ≈ $88700