Sandhill Co. issued 8%, 9-year, $2,618,600 par value bonds that pay interest semiannually on October 1...

Sandhill Co. issued 8%, 9-year, $2,618,600 par value bonds that pay interest semiannually on October 1 and April 1. The bonds are dated April 1, 2017, and are issued on that date. The discount rate of interest for such bonds on April 1, 2017, is 8%.

What cash proceeds did Sandhill receive from issuance of the bonds?

Expert Solution


CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY

Step 1 : Calculation of Annual Coupon Payments
Par value of the bond issued is =			$26,18,600
Annual Coupon %			8.00%
Annual Coupon Amount			$2,09,488.00
Semi Annual Coupon Amount			$1,04,744.00

Step 2: Calculate number of years to Maturity
Number of years to maturity = 9 years
Interest is paid semi annyally so total period = 9 Years * 2 = 18 Periods

Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds

Market rate of interest or Yield to Maturity or Required Return = 8%
Bonds interest is paid semi annualy means so discounting factor = 8 % /2= 4 %

PVF = 1 / Discount rate = 1/ 1.04
Result of above will again divide by 1.04 , repeat this lat period

Period	Interest	Amount (In Million)	PVF @ 4%	PresentValue
1	Interest	$1,04,744.00	0.9615	$1,00,715.38
2	Interest	$1,04,744.00	0.9246	$96,841.72
3	Interest	$1,04,744.00	0.8890	$93,117.03
4	Interest	$1,04,744.00	0.8548	$89,535.61
5	Interest	$1,04,744.00	0.8219	$86,091.93
6	Interest	$1,04,744.00	0.7903	$82,780.70
7	Interest	$1,04,744.00	0.7599	$79,596.83
8	Interest	$1,04,744.00	0.7307	$76,535.41
9	Interest	$1,04,744.00	0.7026	$73,591.75
10	Interest	$1,04,744.00	0.6756	$70,761.29
11	Interest	$1,04,744.00	0.6496	$68,039.71
12	Interest	$1,04,744.00	0.6246	$65,422.79
13	Interest	$1,04,744.00	0.6006	$62,906.53
14	Interest	$1,04,744.00	0.5775	$60,487.05
15	Interest	$1,04,744.00	0.5553	$58,160.63
16	Interest	$1,04,744.00	0.5339	$55,923.68
17	Interest	$1,04,744.00	0.5134	$53,772.77
18	Interest	$1,04,744.00	0.4936	$51,704.58
18	Bond Principal Value	$26,18,600.00	0.4936	$12,92,614.60
	Total			$26,18,600.00

	Current Bonds Price =			$26,18,600

Cash Proceeds from the issue og bonds =			$26,18,600


	Answer =	$26,18,600

ekkarill92 answered 2 years ago

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