Compute the market price of the bonds on november

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On November 1, 2018, Ybarra Construction Company issued $200,000 of 5-year bonds that pay interest at an annual rate of 5%. The interest payments are due every six months (that is, the interest is compounded semi-annually). At the end of the five-year period, Ybarra must pay the bond holders a balloon payment of $200,000.

Problem a. What would the issue price of the bonds be if the prevailing interest rate is (i) 4%? (ii) 6%?

Problem b. Compute the market price of these bonds on November 1, 2020 assuming that the prevailing market interest rate at that time is 8%

Reference no: EM132917492

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