If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds

Question

Nikki Tuason · Accepted Answer

Final Answer : C, Explanation :  Since the coupon rate (6%) is lower than the market rate (7%), the bonds will be sold at a discount. The price of the bond can be calculated using the formula: Price = (Coupon Payment / (1 + (Market Rate / 2))^Number of Semiannual Periods) + (Face Value / (1 + (Market Rate /2))^Number of Semiannual Periods). Using this formula, the price of the bond is calculated to be less than $500,000.

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds

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If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will beA) equal to $500,000B) greater than $500,000C) less than $500,000D) greater than or less than $500,000, depending on the maturity date of the bonds

Definitions

Learning Objectives

Learning Objectives

Related questions

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

A) equal to $500,000
B) greater than $500,000
C) less than $500,000
D) greater than or less than $500,000, depending on the maturity date of the bonds