ABC Company issued $500000 of 4%, 10 year bonds on January 1, 2010. Interest is to be paid semi-annually on December 31. The market rate at the time of the bond issue is 2%. ABC uses the effective interest method of amortization. What is the selling price of bonds? ( Round your answer to zero decimal places)
A. $500,000
B. $590,226
C. $499,829
D. $550,825
Answer: Option B
Solution(By Examveda Team)
NPV of principal = $500000 x 1/(1.01)20 (market rate 2/2 = 1 i.e 1.01 and 10 years semiannually = 20 years)= $409772
NPV of Interest = $10000 x ∑1/(1.01)20
= $180455
Selling price = $409772 + $550,825 = $590,227
This Question Belongs to User Ask Question >> Miscellaneous
Related User Ask Questions
Which of the following is not a primary function of a Bank?
A. Granting Loans
B. Collecting Cheques/Drafts customers
C. Facilitating import of goods
D. Issuing Bank Drafts
A. Regulatory jurisdictional fight between SEBI and IRDA
B. They don’t offer better tax benefits
C. They offer lesser returns compared to traditional insurance policies
D. All of the above
The Chameli Devi Jain Award is given for an outstanding woman ____?
A. Scientist
B. Reporter
C. Player
D. Teacher
Join The Discussion