What is the market price of a $200,000, ten-year, 12% (pays interest
semi-annually) bond issue sold to yield an effective rate of 10%?

Steph21480 --

This bond pays 20 coupons of $12,000 (12% or $24,000 for each year)
PLUS the bond redemption itself at the end of period 20.  We'll set
this up as a net present value (NPV) problem, with a discount of 5.0%
each six months (10% per year).  The NPV is the price of the bond.

I've placed the NPV calculations in a spreadsheet here:
NPVbond
http://www.mooneyevents.com/NPVbond.xls


The total value of the bond coupons is $149,546.52, while the value of
getting the principal back in 10 years is $75,377.90.  So, the market
value of the bond is $224,924.42.

You'll note that the price is higher than the bond.  This is because
the coupon rate is above the market interest rate of 10%.  Normally a
corporate finance staff would try to price the bond closer to par
value, but this shows how interest rate spreads work to RAISE the
price of a bond.

Best regards,

Omnivorous-GA

Excellent researcher- very quick and helpful. A+++