Brief Exercise G-14 Sandhill Co. is about to issue $312,200 of 7-year bonds payi

Question

Brief Exercise G-14 Sandhill Co. is about to issue $312,200 of 7-year bonds paying an 11% interest rate, with interest payable semiannually. The discount rate for such securities is 8%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided) How much can Sandhill expect to receive for the sale of these bonds? (Round answer to o decimal places, e.g. 2,575.) Sandhill can expect to receive s Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT Question Attempts: 0 of 5 used SAVE FOR LATER S SUBMIT ANSWER

Explanation / Answer

Price of the bond could be calculated using below formula.

P = C/ 2 [1 - {(1 + YTM/2) ^2*n}/ (YTM/2)] + [F/ (1 + YTM/2) ^2*n]

Where,

                Face value (F) = $312200

                Coupon rate = 11%

                YTM or Required rate = 8%

                Time to maturity (n) = 7 years

                Annual coupon C = $34342

Let's put all the values in the formula to find the bond current value

P = 34342/ 2 [{1 - (1 + 0.08/2) ^-2*7}/ (0.08/ 2)] + [312200/ (1 + 0.08/2) ^2*7]

    = 17171 [{1 - (1 + 0.04) ^ -14}/ (0.04)] + [312200/ (1 + 0.04) ^14]

    = 17171 [{1 - (1.04) ^ -14}/ (0.04)] + [312200/ (1.04) ^14]

    = 17171 [{1 - 0.57748}/ (0.04)] + [312200/ 1.73168]

    = 17171 [0.42252/ 0.04] + [180287.35101]

    = 17171 [10.563] + [180287.35101]

   = 181377.273 + 180287.35101

    = 361664.62401

So price of the bond is $361664.62

--------------------------------------------------------------------------------------------------------------------------

Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.