Moore Industries manufactures exercise equipment. Recently the vice president of

Question

Moore Industries manufactures exercise 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 exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11% bonds on March 1, 2014, due on March 1, 2029, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. What is the selling price of the bonds?

Explanation / Answer

Bond Selling Price $3230586.76 Working Bond Price formula C*[1-[1/(1+i)n]/i+M/(1+i)n Bond Selling Price 165000*(1-1/(1+0.05)^30)/0.05+3000000/(1+0.05)^30 = 3,230,587 C= (3000000*11%)/2 =     165,000 M=                                  300,000 i 10% Half yearly 5% n 15*2=30

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