Question

Chapter 09 - Long-Term Liabilities Blooms: Analyze Topic: Pricing Bonds Issued at a Discount [QUESTION) 70. Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond? a. $83,920. b. $46,320. c. $54,055. d. $50,000. Answer: c Feedback: FV ($50,000); PMT ($2,500); I (4%); N (10 periods) - $54,055. PMT = $50,000 x 10% x year $2,500. I=8%/2 semiannual periods = 4%. N-5 vears x 2 periods each year = 10 periods.

Answer 1

The answer is option "c" - $54,055

Calculations and explanations:

Period	cash flow	1+r	PVIF	PV = cash flow * PVIF
1	2,500	1.04	0.961538	2,403.85
2	2,500		0.924556	2,311.39
3	2,500		0.888996	2,222.49
4	2,500		0.854804	2,137.01
5	2,500		0.821927	2,054.82
6	2,500		0.790315	1,975.79
7	2,500		0.759918	1,899.79
8	2,500		0.73069	1,826.73
9	2,500		0.702587	1,756.47
10	2,500		0.675564	1,688.91
10	50,000		0.675564	33,778.21
			Total	54,055.45