Blossom Company is about to issue $408,000 of 6-year bonds paying an 11% interest rate, with...
Blossom Company is about to issue $408,000 of 6-year bonds
paying an 11% interest rate, with interest payable annually. 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 Blossom expect to receive for the sale of these bonds?
(Round answer to 0 decimal places, e.g.
2,575.)
| Blossom can expect to receive |
Homework Answers
Blossom can expect to receive $425,768
Working
| Bonds issue price is calculated by ADDING the: |
| Discounted face value of bonds payable at market rate of interest, and |
| Discounted Interest payments amount (during the lifetime) at market rate of interest. |
.
| Annual Rate | Applicable rate | Face Value | $ 408,000 | ||
| Market Rate | 10% | 10.00% | Term (in years) | 6 | |
| Coupon Rate | 11% | 11.00% | Total no. of interest payments | 6 |
.
| Calculation of Issue price of Bond | ||||||||
| Bond Face Value | Market Interest rate (applicable for period/term) | |||||||
| PV of | $ 408,000 | at | 10.00% | Interest rate for | 6 | term payments | ||
| PV of $1 | 0.56447 | |||||||
| PV of | $ 408,000 | = | $ 408,000 | x | 0.56447 | = | $ 230,304 | A |
| Interest payable per term | at | 11.00% | on | $ 408,000 | ||||
| Interest payable per term | $ 44,880 | |||||||
| PVAF of 1$ | for | 10.00% | Interest rate for | 6 | term payments | |||
| PVAF of 1$ | 4.35526 | |||||||
| PV of Interest payments | = | $ 44,880 | x | 4.35526 | = | $ 195,464 | B | |
| Bond Value (A+B) | $ 425,768 | |||||||
Add Answer to:
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Brief Exercise G-13
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(For calculation purposes, use 5 decimal places as
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(Round answer to 0 decimal places, e.g.
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Click here to view the factor table.
(For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
In this case, how much can Dempsey expect to receive from the sale
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(For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
In this case, how much can Dempsey expect to receive from the sale
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Dempsey can expect to receive
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