A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

Question

Quizplus · Accepted Answer

To calculate the discount or premium, we need to compare the coupon rate (6%) to the market rate (7%). Since the coupon rate is lower than the market rate, the bonds will be sold at a discount. To calculate the amount of the discount, we need to find the difference between the face value of the bonds ($100,000) and the present value of the bonds using the market rate. Using a financial calculator or formula, we can find that the present value of the bonds is $95,500. Therefore, the discount is $100,000 - $95,500 = $4,500.

A $100,000 5-Year 6% Bonds Bond Is Issued on January