### Compute the market price of these bonds on November

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Question - 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.

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

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

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