What is the market price of a $400,000, ten-year, 5% bond issue sold to yield an effective rate of 3% if interest is paid semiannually? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The market price of the bond is calculated using the present value of the bond's cash flows, which include the present value of the semiannual interest payments and the present value of the principal amount. Given the bond's coupon rate of 5% and a yield of 3%, the bond is sold at a premium. The correct calculation using a financial calculator or spreadsheet would yield approximately $468,675.

What Is the Market Price of a $400,000, Ten-Year, 5