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If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be ____.

a.less than $500,000
b.equal to $500,000
c.greater than or less than $500,000, depending on the maturity date of the bonds
d.greater than $500,000

Respuesta :

Answer:

a.less than $500,000

Explanation:

For computing the amount we need to applied the present value which is to be shown in the attachment below:

Data provided in the question

Future value = $500,000

Rate of interest = 7%  ÷ 2 = 3.5%

NPER = 2

PMT = $500,000 × 6% ÷ 2  = $15,000

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

After applying the formula, the present value amount is $495,250.76

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