C-Mart Industries issued bonds with a face value of $6,000,000 and a coupon rate of 5% paid semiannually for 4 years. The market rate of interest is 6%.
How much is the market value of the bond using a present value table?

Question

Quizplus · Accepted Answer

The market value of the bond is calculated by discounting the future cash flows (interest payments and the principal repayment) back to their present value using the market rate of interest. The bond pays semiannual interest, so the coupon payment is 5% of $6,000,000 divided by 2, which is $150,000 every six months. Over 4 years, there are 8 payments. The present value of these payments plus the present value of the principal amount (discounted back at the market rate of 6% per annum, or 3% per semiannual period) gives the market value of the bond. The correct calculation aligns with option B, $5,789,414, when using the present value tables for both the annuity (interest payments) and the lump sum (principal repayment) at the market rate.

C-Mart Industries Issued Bonds with a Face Value of $6,000,000