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

Question

Quizplus · Accepted Answer

To calculate the selling price of bonds, we need to use the present value formula.

PV = (Annual interest payment / Market rate) * [1 - (1 / (1 + Market rate)^n)] + (Face value / (1 + Market rate)^n)

Where, 
Annual interest payment = 7% of $100,000 = $7,000
Market rate = 6%
n = 5

PV = (7,000 / 0.06) * [1 - (1 / (1 + 0.06)^5)] + (100,000 / (1 + 0.06)^5)
PV = $104,213.10

Rounding to nearest dollar, the selling price of the bonds is $104,213. Therefore, the best choice is D.

A $100,000 5-Year 7% Bonds Bond Is Issued on January