Question

Mauser Company issues $1 million face amount, zero-coupon 10-year bonds to yield 4% interest. At the date of issue, what issue price will Mauser receive for its bonds?

Answer 1

Mauser Company will receive an issue price of $670,335.49 for the bonds.

Step-by-step explanation:

When a bond is issued, its price is determined by the interest rate at the time of issuance. In this case, Mauser Company is issuing $1 million face amount, zero-coupon 10-year bonds to yield 4% interest. To determine the issue price, we can use the formula:

Issue Price = Face Value / (1 + Yield)^Years

Plugging in the values, the issue price will be:

Issue Price = $1,000,000 / (1 + 0.04)^10 = $670,335.49