On January 1, 2018, Fox, Inc. issued 500, $1,000 bonds. The bonds are 5-year, 6%

Question

On January 1, 2018, Fox, Inc. issued 500, $1,000 bonds. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 4% interest and the bonds are due December 31, 2022. The selling price of this bond is the ________. Present value of $500,000 par value plus the present value of the $20,000 interest payments $500,000 par value of the bond Present value of $500,000 par value minus the present value of the $20,000 interest payments Present value of $500,0 On January 1, 2018, Fox, Inc. issued 500, $1,000 bonds. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 4% interest and the bonds are due December 31, 2022. The selling price of this bond is the ________. Present value of $500,000 par value plus the present value of the $20,000 interest payments $500,000 par value of the bond Present value of $500,000 par value minus the present value of the $20,000 interest payments Present value of $500,0 On January 1, 2018, Fox, Inc. issued 500, $1,000 bonds. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 4% interest and the bonds are due December 31, 2022. The selling price of this bond is the ________. Present value of $500,000 par value plus the present value of the $20,000 interest payments $500,000 par value of the bond Present value of $500,000 par value minus the present value of the $20,000 interest payments Present value of $500,0

Explanation / Answer

Number of bonds issued = 500
Par Value = $1,000

Face Value of Bonds = Number of bonds issued * Par Value
Face Value of Bonds = 500 * $1,000
Face Value of Bonds = $500,000

Annual Coupon Rate = 6%
Annual Coupon = 6% * $500,000
Annual Coupon = $30,000

Time to Maturity = 5 years
Annual Interest Rate = 4%

Price of Bonds = $30,000 * PVA of $1 (4%, 5) + $500,000 * PV of $1 (4%, 5)
Price of Bonds = $30,000 * (1 - (1/1.04)^5) / 0.04 + $500,000 / 1.04^5
Price of Bonds = $544,518.22

So, selling price of this bond is $544,518.22

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.