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raketka [301]
3 years ago
15

A company issued a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interes

t is 5%, at what amount did the bond sell? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)
Multiple choices: $828, $1,686, $1,000, $893
Business
1 answer:
Kitty [74]3 years ago
4 0

Answer: $828

Explanation:

Given the following :

Semi-annual payment = $40

Period = 20 years

Number of payments = (20 * 2)(semiannual) = 40 payments

Par value = $1000

Interest rate = 5%

Using the PV table:

PV at $1 (40, 5%) = 0.1420

PVA at $1 (40, 5%) = 17.159

[Par value * PV at $1 (40, 5%)] + [$40 * PVA at $1 (40, 5%)]

= ($1000 * 0.1420) + ($40 * 17.159)

= $142 + $686.36

=$828.36

= $826

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Answer:

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Simple discount notes could likened to a bank loan where interest on the loan is taken from the borrowed funds before disbursement to the loan's beneficiary,hence proceeds from such notes is face value of the notes less interest taken in advance.

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