$8 million, 6%, 10-year bonds are issued at less than face value.Interest will be paid semi-annually.When calculating the market price of the bond, the present value of
A)$480,000 received for 10 periods must be calculated.
B)$240,000 received for 10 periods must be calculated.
C)$240,000 received for 20 periods must be calculated.
D)$480,000 received for 20 periods must be calculated.

Question

Quizplus · Accepted Answer

Since the bonds are 6% and pay semi-annually, the interest payment every six months is $8,000,000 * 6% / 2 = $240,000. Since these payments occur twice a year for 10 years, there are 20 periods.

$8 Million, 6%, 10-Year Bonds Are Issued at Less Than