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Consider the following example. Bonds with a term of 5 years and face value of $1,000,000 are issued on January 1, 2017 for the amount of $900,000. The contract rate of interest is 10%

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Consider the following example. Bonds with a term of 5 years and face value of $1,000,000 are issued on January 1, 2017 for the amount of $900,000.  The contract rate of interest is 10%. Market rate of interest is 12%. Interest is paid annually on December 31.

1)      Calculate the amount of interest paid in 2017. Show details of your calculations.

Face value of $1,000,000 * 10% contract rate = $100,000 interest paid in 2017 —- My response. Not sure what to do with market rate of interest.

 
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