Asked by Megan McDermott on Jul 03, 2024
Verified
$8 million, 6%, 10-year bonds are issued at less than face value.Interest will be paid semi-annually.When calculating the market price of the bond, the present value of
A) $480,000 received for 10 periods must be calculated.
B) $240,000 received for 10 periods must be calculated.
C) $240,000 received for 20 periods must be calculated.
D) $480,000 received for 20 periods must be calculated.
Present Value
The current worth of a future sum of money or stream of cash flows given a specified rate of return.
Market Price
The present rate at which a service or asset is available for purchase or sale on the market.
- Comprehend the approaches and justifications for assessing bond values in the market, taking into account the impact of interest rates on the pricing of bonds.
Verified Answer
DP
Davion ParkerJul 08, 2024
Final Answer :
C
Explanation :
Since the bonds are 6% and pay semi-annually, the interest payment every six months is $8,000,000 * 6% / 2 = $240,000. Since these payments occur twice a year for 10 years, there are 20 periods.
Learning Objectives
- Comprehend the approaches and justifications for assessing bond values in the market, taking into account the impact of interest rates on the pricing of bonds.