Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond?

Question

Quizplus · Accepted Answer

FV ($50,000); PMT ($2,500); I (4%); N (10 periods) = $54,055.
PMT = $50,000 x 10% x ½ year = $2,500.
I = 8%/2 semiannual periods = 4%.
N = 5 years x 2 periods each year = 10 periods.

Raiders Company Issues a Bond with a Stated Interest Rate