Lou Inc, manufactures cycling equipment. Recently the vice president of operatio

Question

Lou 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 $5,000,000 of 11% term corporate bonds on March 1, 2016, maturing on March 1, 2031. Interest is payable each March 1 and September 1, with the first interest payment being made on September 1, 2016. At the time of the bond issuance, the market interest rate for similar financial instruments is 8%. Required: As the controller of the company, determine the selling price of the bonds.

Explanation / Answer

Based on the information given, the selling price of the bonds will be $ 6,296,902 (Tenure of the Bonds is 15 years).

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