Question

What is the issue price of a bond that has a face value of $1,000,000, a stated interest rate of 8%, and a maturity of five years, when the market interest rate is 10%? Select one:

a. 1,000,000 x 0.62092 (Present Value of $1 @ 10% for 5 periods) + 1,000,000 x 10% x 3.99271 (Present Value of Annuity of $1 @ 8% for 5 periods) = $620,920 + $399,271 = $1,020,191

b. 1,000,000 x 0.68058 (Present Value of $1 @ 8% for 5 periods) + 1,000,000 x 8% x 3.99271 (Present Value of Annuity of $1 @ 8% for 5 periods) = $680,580 + $319,416.8 = $999,996.80

c. 1,000,000 x 0.62092 (Present Value of $1 @ 10% for 5 periods) + 1,000,000 x 8% x 3.79079 (Present Value of Annuity of $1 @ 10% for 5 periods) = $620,920 + $303,263.20 = $924,183.20

d. 1,000,000 x 0.68058 (Present Value of $1 @ 8% for 5 periods) + 1,000,000 x 10% x 3.79079 (Present Value of Annuity of $1 @ 10% for 5 periods) = $680,580 + $379,079 = $1,059,659

Answer 1

Answer : ( option C)

C) 1,000,000*0.62092( Present Value of $1 @10% for 5 years ) + 1,000,000*8%*3.79079( Present Value of Annuity of $1 @10% for 5 Peridos) = $ 620,920+303,263.20 = $ 924,183.20