Your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond is calculated as :
A) the value today of $10,000 received in 5 years plus $700 a year for 5 years.
B) the face value of the bonds, $10,000.
C) the amount investors would have to pay to earn 7% interest.
D) the amount investors would have to pay to earn an average of the stated interest rate and the market interest

Question

Quizplus · Accepted Answer

The issue price of the bond is the present value of the face value ($10,000) received in 5 years plus the present value of the annual interest payments ($700) for 5 years, discounted at the market interest rate of 5%.

Your Company Issues a 5-Year Bond with a Face Value