On January 1, a company issued a 5-year 00,000 bond at 6%. Interest payments on the bond of \6,0

step 1 So this question says that on July 1st, a company sells an ATA bond for $250 ,000 to $50 ,000. A

On January 1, a company issued a 5-year 00,000 bond at 6%....

On January 1, a company issued a 5-year $\$100,000$ bond at 6%. Interest payments on the bond of
$\$6,000$ are to be made annually. If the company received proceeds of $112,300, how would the bond’s issuance be quoted?
A. 1.123
B. 112.30
C. 0.890
D. 89.05

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Key Concepts

Quoted Price

The quoted price of a bond expresses its issuance price relative to its par value, often as a decimal or percentage. This standard quotation allows investors to easily compare the cost of bonds; for instance, quoting a bond as 1.123 indicates that the issue price is 112.3% of its face value.

Bond Premium

A bond is issued at a premium when its issuance price exceeds its par value. This occurs when the coupon rate is higher than current market rates, making the bond more attractive and allowing the issuer to receive more cash than the bond's nominal value.

Coupon Rate and Interest Payments

The coupon rate is the percent of the par value that the bond issuer agrees to pay annually as interest. This rate determines the fixed interest (coupon) payments investors receive over the bond’s life, providing a predictable income stream.

Par Value

Par value is the face amount of a bond that will be repaid at maturity. It serves as the basis for calculating coupon payments and is the standard against which issuance prices (whether at a premium or discount) are compared.

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