Question

Question 17 4 pts The company issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500.000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond? Use Factor Tables or Financial Calculator 5464,471 5537,194 $500,000 $359,528.

Answer 1

Answer:

Issue price of Bond is $464471.

Explanation:

Face value of Bonds = $500000

Semiannual interest rate = 6% / 2 = 3%

Interest Amount = $500000 x 3% = $15000

Semiannual market Interest rate = 7% / 2 = 3.5%

Semiannual periods = 10 years x 2 = 20

Issue price of Bond = Interest Amount x Present Value Annuity factor (r,n) + Face value x Present Value interest factor (r,n)

= $15000 x Present Value Annuity factor (3.5%,20) + $500000 x Present Value interest factor (3.5%,20)

= $15000 x 14.21240 + $500000 x 0.50257

= $213186 + $251285

= $464471.