Asked by
Mostafa Nageh
on Dec 16, 2024
Verified
$2 million, 6%, 10-year bonds are issued when the market rate is 8%.Interest will be paid quarterly.When calculating the issue price of the bond, the interest rate to be used to calculate the present value of the face amount and the present value of the periodic interest payments is
A) 4%.
B) 8%.
C) 6%.
D) 2%.
Market Rate
The Market Rate is the current price or rate at which a good or service can be bought or sold in a competitive marketplace.
Issue Price
It refers to the price at which a new security, such as a bond or stock, is offered to the public for sale.
Present Value
The present value of a future amount of money or succession of cash flows, assuming a certain rate of return.
- Comprehend the principle of market interest rate and its importance in the valuation of bonds and the computation of interest.
- Understand the methods and reasoning for evaluating bonds in the market, including how interest rates influence bond values.
Verified Answer
TB
Learning Objectives
- Comprehend the principle of market interest rate and its importance in the valuation of bonds and the computation of interest.
- Understand the methods and reasoning for evaluating bonds in the market, including how interest rates influence bond values.