Question

Stealth Fitness Center issues 7%, 15-year bonds with a face amount of $200,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semi-annually. At what price will the bonds issue

Answer 1

Answer:

market price of bonds = $219,597.35

Explanation:

Since the coupon rate is higher than the market rate, the bonds will be sold at a premium.

PV of face value = $200,000 / (1 + 3%)³⁰ = $82,397.35

PV of coupon payments = $7,000 x 19.600 (PV annuity factor, 3%, 30 periods) = $137,200

market price of bonds = $219,597.35