Question

Seaside issues a bond that has a stated interest rate of 10%, face amount of $50,000, and is due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue price of the bond? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Multiple Choice
$83,920.
$46,320.
$53,605.
$50,000.

Answer 1

Given:

Face value : $50,000

state rate : 10%

term : 5 years, semi-annual

market rate : 12%

Coupon payments:

50,000 * 10% = 5,000 annual

5,000 / 2 = 2,500 semi - annual

Bond price = Value = (Present value of coupons) + (Present value of face)

Value = (2500/0.06) [ 1- (1.06)⁻¹⁰) ] + (50000 / 1.06¹⁰ )= your answer is

B- $46, 320