Question

seaside 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 12%. what is the issue price of the bond?

Answer 1

Given:
Face value : $50,000
state rate : 10%
term : 5 years, semi-annual
market rate : 12%

Coupon payments:
50,000 * 10% = 5,000 annual
5,000 / 2 = 2,500 semi - annual

Bond price = Value = (Present value of coupons) + (Present value of face) 

Value = (2500/0.06) [ 1- (1.06)⁻¹⁰) ] + (50000 / 1.06¹⁰ )= $46, 320