Question

terps corporation issued $200,000 of 10-year bonds on january 1. the bonds pay interest on january 1 and july 1 and have a stated rate of 10 percent. if the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds (pick the closest answer)?

Answer 1

Bond issue prices are determined by comparing the bond's interest rate to the market interest rate being paid on the same date.

What does issuance of bonds mean?

Shares are initially made available to the public for purchase at a price known as the issue price. On the first day of trade, the company's stock fell beneath its issue price. Investors profit when the face value is paid at maturity less the discount issue price.

When they need to raise money, businesses and governments issue bonds. By purchasing a bond, you are effectively lending the issuer money, and in return they pledge to repay you the face amount of the debt on a particular date as well as make periodic interest payments to you along the way, typically twice a year.

Based on the correlation between the bond's interest rate and the market interest rate being paid on the same day, the issue price of a bond is determined.

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