Business, 25.11.2019 20:31 reyesmtz5414

Kinsey corporation issues $100,000 of 8% bonds, due in 25 years, when the market rate of interest is 9%. interest is paid semi annually on june 30 and december 31. the issue price of the bonds is:

a. $90,119
b. $90,177
c. $92,586
d. $100,000

Answers: 1

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Answer from: angelina6836

Option a.

Explanation:

Given information:

Face value of bond = $100,000

Interest rate of bonds = 8%

Interest is paid semi annually, So the value of interest is

$Interest=100000\times \frac{8}{1000}\times \frac{6}{12}=4000$

Market interest rate = 9%

Time = 25 years

Present value of annuity factor $=\dfrac{1-(1+r)^{-n}}{r}$

$=\dfrac{1-(1+0.045)^{-50}}{0.045}$

=19.7620089

Present value factor $=\dfrac{1}{(1+r)^{n}}$

$=\dfrac{1}{(1+0.045)^{50}}$

0.11070965

Value of bond = (Present value of annuity factor × interest payment) + (present value factor × face value)

Value of the bond $=(19.7620089\times 4000)+(0.11070965\times 100,000)$

$\approx 90,119$

The issue price of the bonds is $90,119.

Therefore, the correct option is a.

Answer from: Quest

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explanation:

Answer from: Quest

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Kinsey corporation issues $100,000 of 8% bonds, due in 25 years, when the market rate of interest is...

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