Answer:
The issue price of the bond is $46,320
Explanation:
Given;
Face value = $50,000
stated interest rate = 10%
period of duration = 5 years
market rate = 12%
Interest payments are made semi-annually
Price of Bond = (Present value of face) + (Present value of coupons)
[tex]Present \ value \ of \ face= \frac{50000}{(1.06)^{10}} =27,919.7[/tex]
Coupon payments is given as
annual payment = 10% of 50,000 = $5,000
semi - annual payment = ¹/₂ × $5,000 = $2,500
[tex]Present \ value \ of \ coupons= \frac{2500}{0.06}*(1-\frac{1}{(1.06)^{10}}) =18,400.2[/tex]
Price of Bond = $27,919.7 + $18,400.2
= $46,320
Therefore, the issue price of the bond is $46,320
