Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% interest rate, with...

Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% 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.)

How much can Wildhorse expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,575.)

Expert Solution

· Wildhorse can expect to received $ 344,520 [or $ 344,521] from sale of Bonds.

· Concept

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and

Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor]

· Data

	Annual Rate	Applicable rate, because of Semi Annual payments
Market Rate	10.0%	5.0%
Coupon Rate	11.0%	5.5%

Face Value	$ 329,900.00
Term (in years)	6
Total no. of interest payments	12

PV 1	0.5568374182
PVA 1	8.8632516364

· Answer calculation

	Amount	PV factor	Present Values
PV of Face Value of	$ 329,900.00	0.55684	$ 183,701.52
PV of Interest payments of	$ 18,144.50	8.86325	$ 160,819.24
Issue Price of Bonds	$ 344,520.76

ekkarill92 answered 2 years ago

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