Bonds Issued at a Discount Assume that a company issues a bond at 92 having a face value of $5,000 and a coupon interest rate of 6%. The bond pays interest annually and has a five-year-maturity time frame, and bonds of similar risk are currently paying interest rates of 8%. The bond's issue price would be of $ bond is actually costing the company more than just the periodic interest payments. For this reason, total interest expense equals the sum of total interest paid over the life of the bond and total discount on the bond. Total interest expense on this bond is , it would make an annual interest payment on the bond in the amount 3, and at the end of five years, it would pay back the principal of s 5000.The total discount on the 3. Because discounted bonds resuit in the company receiving less money up front,the bonds are APPLY THE CONCEPTS: Calculate the selling price of a bond Bond indenture Issue Date: 1/1/2011 Face value: $100,000 Coupon Rate of Interest: 6% annually Maturity date: 12/31/2013 Additional information The market interest rate for bonds of similar risk is 7%. Interest is paid out on an annual basis. .The market price of the bond has yet to be determined Click here to open an illustrated example of the process. + Click to open the table for the Present Value of a Single Amount Click to open the table for the Present Value of an Ordinary Annuity Part 1: Calculate the present value of the face amount to be received at maturity Future Value: $100,000 Year 1 Year 2 Year 3 Present value of the face amount: + Part 2: Calculate the present value of the interest payments to be paid out periodically. Payment: $6,000 Payment: $6,000 Payment: $6,000 Year 1 Year 2 Year 3 Present value of interest payments to be distributed: Part 3: Add the figures calculated in parts 1 and 2 together. Selling price of the bond Total discount on the bond