Question

Ultimate Butter Popcorn issues 7%, 15-year bonds with a face amount of $57,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually. At what price will the bonds issue

Answer 1

Answer:

$52,440

Explanation:

Calculation of what price will the bonds issue

Market rate of 8% ×$57,000

=$4,560

Hence,

$57,000-$4,560

=$52,440

This means that the bonds price will be issue at $52,440

Calculation for Interest payment :

($57,000 × 7% × ½ year) = $1,995

Calculation for the Market interest rate:

8%/2 which is the semi annual periods = 4%

Calculation of the Periods to maturity:

(15 years × 2 periods each year) = 30

Therefore the price that the bonds will be issued is $52,440