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28 November, 03:32

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?

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  1. 28 November, 03:40
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    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 / 1.06 ¹⁰) = $46, 320
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