Answer:
Option a.
Explanation:
Given information:
Face value of bond = $100,000
Interest rate of bonds = 8%
Interest is paid semi annually, So the value of interest is
[tex]Interest=100000\times \frac{8}{1000}\times \frac{6}{12}=4000[/tex]
Market interest rate = 9%
Time = 25 years
Present value of annuity factor [tex]=\dfrac{1-(1+r)^{-n}}{r}[/tex]
[tex]=\dfrac{1-(1+0.045)^{-50}}{0.045}[/tex]
[tex]=19.7620089[/tex]
Present value factor [tex]=\dfrac{1}{(1+r)^{n}}[/tex]
[tex]=\dfrac{1}{(1+0.045)^{50}}[/tex]
[tex]0.11070965[/tex]
Value of bond = (Present value of annuity factor × interest payment) + (present value factor × face value)
Value of the bond [tex]=(19.7620089\times 4000)+(0.11070965\times 100,000)[/tex]
[tex]\approx 90,119[/tex]
The issue price of the bonds is $90,119.
Therefore, the correct option is a.
