Question

issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 12 percent, what will be the issuance price of the bonds (pick the closest answer)?

Answer 1

$177,060.16

Step-by-step explanation:

The issuance price of the bonds is also known as the current price of bonds and in the bond calculation we refer this as the Present Value or PV.

Using a financial calculator, PV of the Bond is determined as :

FV = $200,000

N = 10 x 2 = 20

P/YR = 2

PMT = ($200,000 x 10%) ÷ 2 = $10,000

I/YR = 12 %

PV = ??

Thus,

The PV is determined as $177,060.16

therefore,

The issuance price of the bonds is $177,060.16