Pronghorn Inc. issues $2,400,000 of 7% bonds due in 12 years with interest payable at year-end....

Pronghorn Inc. issues $2,400,000 of 7% bonds due in 12 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 11%. What amount will Pronghorn receive when it issues the bonds? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and final answer to 0 decimal places, e.g. 458,581.)

Amount received by Pronghorn when bonds were issued?

Expert Solution

Interest = $2,400,000 * 7% = $168,000

Present value = Interest * PVIFA(11%,12) + Principal * PV factor(11%,12)

= ($168,000 * 6.49236) + ($2,400,000 * 0.28584)

= $1,090,716.48 + $686,016

= $1,776,732.48

Amount received by Pronghorn when bonds were issued = $1,776,732

jeff jeffy answered 2 years ago

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