question archive If the market interest rate is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount
If the market interest rate is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount
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If the market interest rate is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount
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Answer:
| The bonds would sell at an amount greater than face value. |
| When the market rate of interest is less than stated rate of interest, the bonds are sold at a premium. |
| Workings: | |||
| Amount | PV factor 10% | Present value | |
| Interest | 1200 | 6.14457 | 7373.48 |
| Principal | 10000 | 0.38554 | 3855.43 |
| Total | 11228.91 | ||
| PV factor 10% | |||
| Interest | 6.14457 | =(1-(1.10)^-10)/0.10 | |
| Principal | 0.38554 | =1/1.10^10 | |
