Exercise 6-13 Pharoah Inc. manufactures cycling equipment. Recently, the vice pr
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Question
Exercise 6-13 Pharoah 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 $3,103,800 of 7% 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 896. 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 0 decimal places, e.g. 458,581.) Selling price of the bonds Click if you would like to Show Work for this question:Explanation / Answer
From march 1 2017 to march 1 2032 ........we have 15 years. so n = 15 * 2 semi annuals = 30 periods
Coupon = 3103,800 * 7% * 1/2 = 108633
r = 0.08/2 = 0.04
Now bond price = coupon [ PVA] + Maturity value [ PV]
PVA = Present value of annuity = [ 1 - (1.04)-30 ] / 0.04 = 17.29203
PV = Present value = (1.04)-30 = 0.30832
= 108633 * 17.29203 + 3103800 * 0.30832 = 2835449.............final answer