On January 1, 2016, bonds with a face value of $72,000 were sold. The bonds mature on January 1, 2026. The face interest rate is 6%. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is 10%. What is the market price of the bonds? The present value of $1 for 20 periods at 5% is 0.377. The present value of an ordinary annuity of $1 for 20 periods at 5% is 12.462. The present value of $1 for 20 periods at 3% is 0.554. The present value of an ordinary annuity of $1 for 20 periods at 3% is 14.878. (Round your final answer to the nearest dollar.)

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Quizplus · Accepted Answer

The market price of the bonds is calculated using the present value of the interest payments and the present value of the principal. The semiannual interest payment is $2,160 ($72,000 * 6% / 2). Using the market rate of 5% per period (10% annual rate divided by 2), the present value of the interest payments is $26,899 (2,160 * 12.462). The present value of the principal is $27,163 (72,000 * 0.377). Adding these gives a market price of $54,062.

On January 1, 2016, Bonds with a Face Value of $72,000