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On January 2, 2020, Wine Corporation wishes to issue $6,000,000 (par value) of its 8%, 10-year...

On January 2, 2020, Wine Corporation wishes to issue $6,000,000 (par value) of its 8%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 10%. compute the amount that Wine will realize from the sale (issuance) of the bonds. the answer should be 5262408

solve it using the calculator method(PV= FV= N= ) and show ur work

Solutions

Expert Solution

Face value of bond = $ 6,000,000
Interest rate of bonds = 8%
Tenure = 10 years
Current yield rate of bonds = 10%
Since, the simialr bonds in the market yield 10% and the bond that company issues interest rate is 8% the bonds can only be sold at a discount
Current value = Future value/(1+r)^n
Year Future value 1/(1+r)^n Present value
1 $            480,000 0.909091 $      436,363.64
2 $            480,000 0.826446 $      396,694.21
3 $            480,000 0.751315 $      360,631.10
4 $            480,000 0.683013 $      327,846.46
5 $            480,000 0.620921 $      298,042.24
6 $            480,000 0.564474 $      270,947.49
7 $            480,000 0.513158 $      246,315.90
8 $            480,000 0.466507 $      223,923.54
9 $            480,000 0.424098 $      203,566.86
10 $            480,000 0.385543 $      185,060.78
10 $        6,000,000 0.385543 $ 2,313,259.74
$ 5,262,651.95
The amount that yields from sale of bond is $ 5,262,651.95

ekkarill92 answered 1 year ago
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