Question

on january 1, a company issued a 5-year $100,000 bond at 6%. interest payments on the bond of $6,000 are to be made annually. if the company received proceeds of $112,300, how would the bond's issuance be quoted? group of answer choices .890 112.30 89.05 1.123

Answer 1

The bond's issuance price can be calculated using the present value of the bond's future cash flows, considering the bond's yield rate. In this case, the bond's issuance would be quoted as $112.30. The correct answer is option: 112.30

Step-by-step explanation:

To calculate the bond's issuance price, we need to consider the present value of the bond's future cash flows. The interest payments of $6,000 per year for 5 years can be discounted back to their present value using the bond's yield rate of 6%.

The proceeds of $112,300 can be considered as the present value of the bond's face value plus the present value of the interest payments. Therefore, the bond's issuance price can be calculated as:

Bond's issuance price = Present value of face value + Present value of interest payments

Bond's issuance price = $100,000 + $6,000/(1.06) + $6,000/(1.06)^2 + $6,000/(1.06)^3 + $6,000/(1.06)^4 + $6,000/(1.06)^5

= $112,300

So, the bond's issuance would be quoted as $112.30.