Answer:
$305,772.29
The bond was issued at discount
Explanation:
The pv value approach in excel comes handy in determining the price of teh bond.
The formula is stated below:
=-pv(rate,nper,pmt,fv)
rate is the yield to maturity of other bonds of similar risk and maturity at 11%
nper is the number of times that the bond would pay coupon interest to the bondholders ,since the bond is an annual coupon paying bond,it would pay coupon for 10 years
pmt is dollar value of the coupon payable by the bond annually which is 7%*$400,000=$28,000
fv is the face value of the bond at $400,000
=-pv(11%,10,28000,400000)=$305,772.29
Since the bond was be issued at a price lower than its face value,hence it was issued at a discount
Alternatively
Present value of interest payment = 28000 * 5.8892 = 164,898
Present value of Bond Principal = 400000 * 0.3522 = 140,874.
Total present values 305,772
