On January 1, 2021, Anne Teak Furniture issued $100,000 of 10% bonds, dated January 1. Interest is payable semiannually on June

Question

2 years ago

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On January 1, 2021, Anne Teak Furniture issued $100,000 of 10% bonds, dated January 1. Interest is payable semiannually on June

30 and December 31. The bonds mature in 15 years. The annual market rate for bonds of similar risk and maturity is 12%. What was the issue price of the bonds

Business

1 answer:

zysi [14] · Answer 1 · 2022-09-18T06:13:33+03:00

Answer: $86,235

Explanation:

Use Excel or a financial calculator to calculate the bond price.

As the interest is payable semiannually, the relevant variables are:

Coupon = 10% * 100,000 * 1/2 years = $5,000

Yield = 12% / 2 = 6%

Number of periods = 15 years * 2 = 30 semi annual periods

Bond price = $86,235