Question

What is the issue price (the amount of cash the sellers will receive) of a $ 55,427 face value bond with a stated price of 104, 6%, 23-year, semiannual interest payments, rounding to one dollar

Answer 1

The issue price of the bond is found by multiplying the face value ($55,427) by the price percentage (104%), resulting in $57,644.08, which is then rounded to the nearest dollar, giving us an issue price of $57,644.

Step-by-step explanation:

Calculation of the Issue Price of a Bond

When attempting to calculate the issue price of a bond, one must take into account the face value of the bond, the stated price percentage (also known as the issue price as a percentage of the face value), and the frequency of the interest payments.

Here, the student has provided a face value of $55,427 and a stated price of 104%. The bond makes semiannual interest payments, and we are rounding the final issue price to the nearest dollar.

To calculate the issue price, you would multiply the face value by the price percentage. As follows:

Issue Price = Face Value × Price Percentage/100
Issue Price = $55,427 × 104/100
Issue Price = $57,644.08

Once calculated, the issue price is typically rounded to the nearest dollar. Therefore, the bond's issue price will be $57,644.