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On January 1, 2011, ABC issues 8%, 2-year bonds with a face value of $100,000. Coupons are payable semi-annually on June 30 and December 31,
On January 1, 2011, ABC issues 8%, 2-year bonds with a face value of $100,000. Coupons are payable semi-annually on June 30 and December 31, and the bond will be repaid on December 31, 2012. The market rate of interest on the date of issue is 12%, compounded semi-annually. Show how the issue price (starting liability) of $93,070 grows to $100,000 in liability by the maturity date. Solution: 1/1/2011 6/30/2011 7/1/2011 $93,070 $5,584 Interest at 6% ($4,000) less coupon payment $94,654 New Balance Interest at 6% less coupon payment New Balance
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