Answer:
The issue price of the bond is $46,320
Explanation:
Given;
Face value = $50,000
stated interest rate = 10%
period of duration = Â 5 years
market rate = 12%
Interest payments are made semi-annually
Price of Bond = Â (Present value of face) + (Present value of coupons)
[tex]Present \ value \ of \ face= \frac{50000}{(1.06)^{10}} =27,919.7[/tex]
Coupon payments is given as
annual payment = 10% of 50,000 Â = Â $5,000
semi - annual payment = ¹/₂ × $5,000 = $2,500
[tex]Present \ value \ of \ coupons= \frac{2500}{0.06}*(1-\frac{1}{(1.06)^{10}}) =18,400.2[/tex]
Price of Bond = $27,919.7 + $18,400.2
            = $46,320
Therefore, the issue price of the bond is $46,320
Answer:
$46300
Explanation:
interest that earned will be $50,000×10%=$5000
Since payments are made semi-annually, a payment of  $2,500 is made every six months
market rate for the bond is 12%, which implies 6% for every 6 months since the payment is semi-annually.
using the Present Value Factor Table, find out the Present Value Factor of the bond.
using 6% interest for 10 terms of six month each, the Present Value Factor is 0.558.
using the Present Value of an Annuity Factor Table, Â the Present Value of an Annuity Factor is 7.36.
current value of interest payments = 7.36 * $2,500 = Â $18400
current face value of bond= 0.558 * $50,000 = Â $27900
current price of bond = Â $27900 + $18400 = $46300
