Question

Your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond is calculated as the:

A) present value of $10,000 to be received in 5 years plus the present value of $700 per year for 5 years.

B) face value of the bonds, $10,000.

C) amount investors would have to pay to earn 7% interest.

D) amount investors would have to pay to earn an average of the stated interest rate and the market interest rate.

Answer

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