Question

Cainas Cookies issues a $1,000,000, 5 year, 12% bond when the market rate of interest is 8%. Interest is paid semi-annually. To solve for the issue price of the bond, you need to solve for: $1,000,000 (PV ss n = 5 1 = 8%) + $60,000 (PV ann n= 10 1 = 4%) $1,000,000 (PV ss n = 101 = 6%) + $40,000 (PV ann n= 101=6%) $1,000,000 (PV ss n = 10 1 = 4%) + $120,000 (PV ann n = 101 = 4%) $1,000,000 (PV ss n = 10) = 4%) + $60,000 (PV ann n = 10 1 = 4%)

Answer 1

Answer C

Present Value of Bond (Market Value)= Present Value of Face Value + Present value of Interest