Sheridan Company is issuing $9.8 million 12% bonds in a private placement on July 1, 2020....

Sheridan Company is issuing $9.8 million 12% bonds in a private placement on July 1, 2020. Each $1200 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds?

A) $14700000 B) $12463736 C) $12430317 D) $12530374

Solutions

Expert Solution

Computatio Of Value Of The Bond

a	Semi-annual Coupon Amount	$ 5,88,000.00
	($9800000*12%/2)
b	Present Value Annuity Factor for (20 Years,4%)	13.590326
c	Present Value Of Annual Interest (a*b)	$ 79,91,111.89
d	Redemption Value	$ 98,00,000.00
e	Present Value Factor Of (20 Years,4%)	0.45639
g	Present Value Of Redemption Amount (d*e)	$ 44,72,592.07
f	Bond Value (c+g)	$ 1,24,63,736

Correct Answer =B) $12463736

jeff jeffy answered 1 year ago

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