Dempsey Railroad Co. is about to issue $252,000 of 7-year bonds
paying an 11% interest rate, with interest payable semiannually.
The discount rate for such securities is 12%.
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
of these bonds? (Round answer to 0 decimal places, e.g.
2,525.)
Dempsey can expect to receive | $ |
Answer
Bonds issue price is calculated by ADDING the: |
Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and |
Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor] |
Face Value |
$ 252,000.00 |
Term (in years) |
7 |
Total no. of interest payments |
14 |
Annual Rate |
Applicable rate, because of Semi Annual payments |
|
Market Rate |
12.0% |
6.0% |
Coupon Rate |
11.0% |
5.5% |
Amount |
PV factor |
Present Values |
|
PV of Face Value of |
$ 252,000.00 |
0.44230 |
$ 111,459.60 |
PV of Interest payments of |
$ 13,860.00 |
9.29499 |
$ 128,828.56 |
Issue Price of Bonds |
$ 240,288.16 |
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