Target Company issues bonds with a par value of $900,000 on their stated issue date.The bonds mature in 10 years and pay 10% annual interest in semiannual payments.On the issue date,the annual market rate for the bonds is 12%.What is the selling price of the bond?

Question

Quizplus · Accepted Answer

Present Value of the par value: (pv$) 900,000 * .3118 = 280,620
Present Value of interest payments: (pva) 45,000*11.4699 = 516,146 (rounded)
Selling Price $796,766
Table: use 6% and 20 periods

Target Company Issues Bonds with a Par Value of $900,000