In: Accounting
rief Exercise A-14 Dempsey Railroad Co. is about to issue $288,000 of 10-year bonds paying an 9% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Dempsey expect to receive from the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to receive $
Bonds issue price is calculated by ADDING the: |
Discounted face value of bonds payable at market rate of interest, and |
Discounted Interest payments amount (during the lifetime) at market rate of interest. |
Annual Rate |
Applicable rate [since semi annual payments] |
|
Market Rate |
10.0% |
5.0% |
Coupon Rate |
9.0% |
4.5% |
Face Value |
$ 288,000.00 |
Term (in years) |
10 |
Total no. of interest payments |
20 |
PV of $1 factor table of 5% for 20th period, AND
PV of Annuity of $1 factor table of 5% for 20th period.
Amount |
PV factor/PV Annuity factor [LOOK the values under your factor table] |
Present Values |
|
PV of Face Value of |
$ 288,000.00 |
0.37689 |
$ 108,544 |
PV of Interest payments of |
$ 12,960.00 [288000 x 9% x 6/12] |
12.46222 |
$ 161,510 |
Issue Price of Bonds |
$ 270,054 [or $ 270,055 depending on your factor table value] |