Question

In: Accounting

Brief Exercise 6-15 Bridgeport Inc. issues $2,119,100 of 11% bonds due in 10 years with interest...

Brief Exercise 6-15

Bridgeport Inc. issues $2,119,100 of 11% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 12%.

Click here to view factor tables

What amount will Bridgeport receive when it issues the bonds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.)

Amount received by Bridgeport when bonds were issued

Solutions

Expert Solution

Principal 2,119,100
interest 233101
Calculation of bond issue price
Where
i= 12.00%
t= 10 years
principal * PV of $1 at 12% for 10 yrs =
2,119,100 * 0.32197        =              682,287
interest * PV of ordinary annuity at 12%=
233101 * 5.65022 =          1,317,072
bond issue price          1,999,359
so
present value of the face amount              682,287
present value of the semi-annual interest payments          1,317,072
price received for bonds          1,999,359 answer

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