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4. $5 million, 8%, 10-year bonds are issued when the market rate is 6%. Interest will be paid semi-annually. When calculating the issue price of
4. $5 million, 8%, 10-year bonds are issued when the market rate is 6%. Interest will be paid semi-annually. When calculating the issue price of the bond, the interest rate to be used to calculate the present value of the face amount and the present value of the periodic interest payments is
(a) 8%.
(b) 6%.
(c) 4%.
(d) 3%.
Would the answer be 6% since that is the market rate? I'm confused since the contractual rate is higher. Thank you.
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