Rhode Company is about to issue $4,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Rhode expect to receive from the sale of these bonds?
A) $3,691,117
B) $4,000,000
C) $4,324,440
D) $3,308,880

Question

Quizplus · Accepted Answer

The bonds are issued at a discount because the contract rate (8%) is lower than the market rate (10%). The present value of the bond's cash flows (interest and principal) at the market rate will determine the amount received, which is $3,691,117.

Rhode Company Is About to Issue $4,000,000 of 5-Year Bonds