HW-1731 Selling price of bond

APPLY THE CONCEPTS: Calculate the selling price of a bond

Bond indenture

Issue Date: 1/1/2011

Face value: $100,000

Coupon Rate of Interest: 6% annually

Maturity date: 12/31/2013

Additional information

· The market interest rate for bonds of similar risk is 8%.

· Interest is paid out on an annual basis.

· The market price of the bond has yet to be determined.

Part 1: Calculate the present value of the face amount to be received at maturity.

Part 2: Calculate the present value of the interest payments to be paid out periodically

Part 3: Add the figures calculated in parts 1 and 2 together.