Question

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was _____. Use the following tables, if needed.

a. $321,970
b. $1,000,000
c. $943,494
d. $621,524

Answer 1

Correct option is (c)

Step-by-step explanation:

Given:

YTM (yield to maturity) (Rate) = 12%

Coupon rate = 11%

Face value = $1,000,000

Coupon payment (pmt) = 0.11 × 1,000,000 = $110,000

Time period (nper) = 10 years

Selling price of the bond is the present value of the bond which can be computed using spreadsheet function =PV(rate,nper,pmt,FV)

=PV(0.12,10,110000,1000000)

Present value of bond is $943,498 which is close to option (c)