Albacore Inc.issued a $500,000, 6%, 10-year bond, paying interest semi-annually to yield 8%.The issuance price was closest to:

Question

Quizplus · Accepted Answer

The issuance price of a bond is determined by discounting the bond's future cash flows (interest payments and principal repayment) at the market interest rate (yield). Since the bond's coupon rate (6%) is lower than the yield (8%), the bond will be issued at a discount, meaning the price will be less than the face value ($500,000). Among the given options, $432,048 is the only one significantly less than the face value, indicating it is the correct choice for a bond issued at a discount.