A $100,000 5-year 6% bond is issued on January 1, 2021. The bond pays interest annually. The market rate is 7%. What is the selling price of the bonds, rounded to nearest dollar?

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The selling price of the bond is determined by discounting the future cash flows (interest payments and the principal repayment) back to their present value using the market interest rate. The annual interest payment is $100,000 * 6% = $6,000. The present value of these interest payments and the $100,000 principal repayment, discounted at the market rate of 7%, needs to be calculated. Using the formula for the present value of an annuity and the present value of a single sum, the calculation results in a selling price of approximately $95,900.

A $100,000 5-Year 6% Bond Is Issued on January 1