Ocean Adventures issues bonds due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. Using a financial calculator or Excel, what is the issue price of the bonds?
A) $537,194.
B) $464,469.
C) $538,973.
D) $500,000.

Question

Quizplus · Accepted Answer

FV ($500,000); PMT ($15,000); I (2.5%); N (20 periods) = PV ($538,973).
PMT = $500,000 × 6% × ½ year = $15,000.
I = 5% / 2 semiannual periods = 2.5%.
N = 10 years × 2 periods each year = 20 periods.

Ocean Adventures Issues Bonds Due in 10 Years with a Stated