Question

Range Company issues zero-coupon, 5-year bonds with a face amount of $400,000 to yield 6%. At what price did the bonds sell?"

a) $283,019.16
b) $339,620.25
c) $357,918.87
d) $377,358.49
e) $400,000.00

Answer 1

The price at which the bonds sold is $283,019.16.

Step-by-step explanation:

The price at which the bonds sold can be calculated using the present value formula.

Present Value = Face Amount / (1 + Yield)^Years

In this case, the face amount is $400,000, the yield is 6%, and the years is 5.

Therefore, the price at which the bonds sold is:

PV = $400,000 / (1 + 0.06)^5 = $283,019.16

So, the correct answer is a) $283,019.16.