Raiders Company issues a bond with a stated interest rate of 10%,face value of $50,000,and due in 5 years.Interest payments are made semi-annually.The market rate for this type of bond is 8%.What is the issue price of the bond?

Question

Quizplus · Accepted Answer

To calculate the issue price of the bond, we need to use the present value formula with the given information.

PV = (C x [1 - (1 + r)^-n] / r) + (FV / (1 + r)^n)

Where:
PV = Present value
C = Periodic interest payment
r = Discount rate/market rate
n = Number of periods
FV = Face value

Plugging in the given values, we get:

PV = ($2,500 x [1 - (1 + 0.08/2)^-10] / (0.08/2)) + ($50,000 / (1 + 0.08/2)^10)
PV = $54,055

Therefore, the issue price of the bond is $54,055, which is closest to option C.

Raiders Company Issues a Bond with a Stated Interest Rate