Larkspur Inc. issues $3,800,000 of 7% bonds due in 12 years with interest payable at year-end....
Larkspur Inc. issues $3,800,000 of 7% bonds due in 12 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 11%.
What amount will Larkspur receive when it issues the bonds?
Homework Answers
Solution:
| Computation of bond price | |||
| Table values are based on: | |||
| n= | 12 | ||
| i= | 11.00% | ||
| Cash flow | Table Value | Amount | Present Value |
| Par (Maturity) Value | 0.28584 | $3,800,000.00 | $1,086,192 |
| Interest (Annuity) | 6.49236 | $266,000.00 | $1,726,968 |
| Price of bonds | $2,813,160 | ||
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