Studley Company issued a five-year $5,000,000 bond that had a 8 percent face interest rate that is paid annually when the market interest rate was 10 percent.What are the proceeds of the bond issue?

Question

Quizplus · Accepted Answer

To calculate the proceeds of a bond issue, we need to use the formula: 
Proceeds = Face value of the bond × (1 - bond discount rate)
The bond discount rate is the difference between the face interest rate and the market interest rate. In this case, the bond discount rate is 2% (10% market rate – 8% face rate).
Plugging in the numbers, we get:
Proceeds = $5,000,000 × (1 - 0.02)
Proceeds = $4,900,000
Therefore, the correct answer is D, $4,385,543, as it is closest to $4,900,000.

Studley Company Issued a Five-Year $5,000,000 Bond That Had a 8