Question

On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.

Answer 1

Answer:

The first thing to note here is that the coupon rate of the bond is 8% and market rate is 10% which means that bond would have been sold on discount( less than par value) as it is paying a lower interest rate than the market rate.

8% of 100,000= 8,000

Semiannual payment so 8000/2=4000

R=10%/2=5%

N=5*2=10

FV= 100,000

PV=?

PMT= 4000

PV=92,278

If you have a financial calculator you can put these value in and get the answer other wise use the formula attached

       

Explanation: