Your Company Issues a 5-Year Bond with a Face Value

question 205

Multiple Choice

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.

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Definitions:

Maturity Date

The specified date on which the principal amount of a bond or other financial instrument is due to be repaid.

Interest Rate Changes

Variations in the cost of borrowing or the return on savings that occur due to economic policy or market conditions.

Spreadsheet

A spreadsheet is a digital tool for organizing, analyzing, and storing data in tabular form, frequently used for financial planning, calculations, and record keeping.

Cash Flows

The aggregate value of cash entering and exiting a company, particularly influencing its liquid assets.