Dempsey Railroad Co. is about to issue $266,000 of 7-year bonds
paying an 12% interest rate, with interest payable semiannually.
The discount rate for such securities is 10%.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
How much can Dempsey expect to receive for the sale of these bonds?
(Round answer to 0 decimal places, e.g.
2,525.)
Dempsey can expect to receive | $ |
Dempsey can expect to receive | = | $ 2,92,331 | ||
Workings: | ||||
Cash flow | Period | Amount | P.V Factor @ 5% | Present Value |
Maturity value | 14 | $ 2,66,000 | 0.50507 | $ 1,34,349 |
Interest (annuity) | 1 to 14 | $ 15,960 | 9.89864 | $ 1,57,982 |
Total proceeds | $ 2,92,331 | |||
Working notes:- | ||||
Interest is payable semiannualy i.e twice a year | ||||
Semiannual coupon rate | = | Coupon rate / 2 | ||
= | 12% / 2 | |||
= | 6% | |||
Number of semiannual periods | = | Number of years X 2 | ||
= | 7 years X 2 | |||
= | 14 years | |||
Interest payment | = | $266000 X 6% | ||
= | $ 15,960 | |||
Semiannual market interest rate | = | 10% / 2 | ||
= | 5% |
Dempsey Railroad Co. is about to issue $266,000 of 7-year bonds paying an 12% interest rate,...
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