Micro Company wishes to issue $400,000 of 5-year, 6% bonds, with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

Question

Quizplus · Accepted Answer

The face amount of the bonds is needed as it represents the amount of principal being borrowed, the stated rate of interest is needed as it determines the amount of interest payments to be made annually, the market rate of interest is needed as it determines the present value of future cash flows, and the bond life is needed as it determines the number of interest payments to be made. The bond rating and purpose of the issue are not relevant in determining the selling price.

Micro Company Wishes to Issue $400,000 of 5-Year, 6% Bonds