Waddle Enterprise issued an 8-year,10% bond on January 1,20X9.Each bond sold for face value,which is $1,000.The bonds pay interest semi-annually on June 30 and December 31.The bonds mature on December 31,2X15.Using present value tables,what is the market price of each $1,000 bond on January 1,2X11,if the market rate of interest has changed to 8%?
A)$ 893.29
B)$ 912.92
C)$1,000.00
D)$1,081.15
E)$1,114.96

Question

Quizplus · Accepted Answer

The market price of the bond is calculated by discounting the future cash flows (interest payments and principal) at the new market rate of 8%. The bond has 5 years remaining, with 10 semi-annual periods. The interest payment is $50 (10% of $1,000 divided by 2). Using present value tables, the present value of the interest payments and the principal at 8% results in a market price of approximately $1,081.15.

Waddle Enterprise Issued an 8-Year,10% Bond on January 1,20X9