Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year,which includes 4% interest.How much will they receive for the bond?
A) $9,600
B) $9,615
C) $10,000
D) $10,400

Question

Quizplus · Accepted Answer

The bondholder will receive $9,615 for the bond. This is because the bond has a face value of $10,000 and a 4% interest rate. The interest payment for one year is $400 ($10,000 x 4%). The bondholder will receive the face value of the bond plus the interest payment, which is $10,000 + $400 = $10,400. However, the bondholder will have to pay taxes on the interest payment, which will reduce the amount they receive to $10,400 - $160 = $9,615.

Suppose Matt's New Cars Issues a Bond in Which They'll