$2 million, 6%, 10-year bonds are issued when the market rate is 8%.Interest will be paid quarterly.When calculating the issue price of the bond, the interest rate to be used to calculate the present value of the face amount and the present value of the periodic interest payments is
A)4%.
B)8%.
C)6%.
D)2%.

Question

Quizplus · Accepted Answer

The market rate of 8% is an annual rate. Since interest is paid quarterly, the quarterly market rate is 2% (8% annual rate divided by 4 quarters).

$2 Million, 6%, 10-Year Bonds Are Issued When the Market