Answer:
The issue price at 12% market rate is $676.77
The difference between the issue price of $676.77 and the face value is first of all due to a higher discount rate of 12%(yield to maturity) compared to lower a stated rate of 8%(coupon rate),hence when the discount rate is higher ,bond is issued at discount and at a premium when coupon rate is higher.
Explanation:
The price of the bond can be computed using the pv formula in excel,which is given as =-pv(rate,nper,pmt,fv)
rate is the semi-annual yield to maturity on the bond which is 12%/2=6%
nper is the number of coupon payments payable during the life of the bond ,which is 30*2(2 symbolizes semi-annual payment) =60
pmt is the semi-annual interest payment,which is 8%/2*$1000=$40
fv is the face value of the bond repayable on redemption ,which is $1000
=-pv(6%,60,40,1000)
=$676.77
