Question

X company issued bond with face value is $82,000, the stated rate is 10%, and the term of the bond is 8 years. The bond pays interest semiannually. At the time of issue, the market rate is 8%. What is the present value of the bond (or Bond price) at the issue date?

Answer 1

Interest amount (Semi-annually) = 82,000 x 10% x 1/2 = $4,100

Market Interest rate (Semi-annually) = 8/2 = 4%

Term of Bond = 8 years : Therefore, Periods for discounting = 16

Present value annuity factor for 16 period @ 4% (PVAF) (Present value of annuity table) = 11.652

Present value factor for 16th period @4% (PVIF) (Present value table) = 0.534

Therefore, Present value of bond = Interest amount (PVAF) + Face value (PVIF)

=4,100*(11.652)+82,000*(0.534)

= $91,561.20

Answer: $91,561