Question

Mind Explorers issues bonds with a stated interest rate of 7%, face value of $200,000, and due in 10 years. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Using present value tables, calculate the issue price of the bonds.

Multiple Choice

• $163,200.

• $186,410.

• $214,878.

• $200,000.

Answer 1

Here Answer is $214878

Calculated As

Face Value of Bond = $200000.

interest rate = 7% Semi Annually = 3.5%

semi Annually interest = 3.5% of 200000 = $7000

Market Rate = 8% Semi Annually = 4%

PV will be take @ 4% for 20 Periods for Interest

And Pv will be take @ 4% for 20th period for maturity Value

Value of bond will be calculated as following

		PV @ 3%	Present Value
1 to 20 Semi Annual int payments	$               7,000	14.877	$          104,142
Maturity Value at end of 20th period	$          200,000	0.553676	$          110,735
Value of bond			$          214,877

Issue price of bond = $214877 near $21478

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