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Question 5 View Policies Current Attempt in Progress Blossom Company is issuing eight-year bonds with a coupon ite of 6.1 percent and semiannual coupon payments. If the current market rate for similar bonds is 9 percent. What will the bond price be? (Round intermediate calculations to 5 decimal places, eg. 1.25145 and bond price to 2 decimal places, eg. 15.25.) Bond price $ If company management wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 5 decimal places, eg. 1.25145 and number of bonds to O decimal places, es 5,275) Number of bonds eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer

Answer 1

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 9%/2 (Semiannual YTM of bonds = annual YTM / 2)

nper = 8 * 2 (8 years remaining until maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 6.1% / 2 (semiannual coupon payment = face value * coupon rate / 2)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $837.11

A1 x f =PV(9%/2,8*2,1000*6.1%/2, 1000) B C D E F G A 1 ($837.11)

number of bonds to sell = amount to raise / price per bond

number of bonds to sell = $1,250,000 / $837.11

number of bonds to sell = 1,493