Exercise 6-13 Metlock Inc. manufactures cycling equipment. Recently, the vice pr

Question

Exercise 6-13 Metlock Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,462,400 of 11% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2017. At the time of issuance, the market interest rate for similar financial instruments is 8% Click here to view factor tables As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Selling price of the bonds Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Interest paid by the bond= $3462400 x 11/100=380864

present value of the bond = 0.3152 X $3462400 =1091348 (8%)

present value of interest payments = $380864 X 8.5595 =3260005 (8% at 15 years)

bond price = sum of the present value of the bond repayment that is due at its maturity in five years, and the present value of the related stream of future interest payments. I.e. $1091348+$3260005 =$4351353

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