Question

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

Multiple Choice

• $100,000.

• $104,265.

• $71,906.

• $95,842.

Answer 1

Issue price = Present value of interest+Present value of maturity

= (100000*3%*8.31661)+(100000*0.70892)

Issue price = $95842

So answer is d) $95842