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Chapter 6: Question 13E (page 304)

Hincapie Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company鈥檚 bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. Instructions As the controller of the company, determine the selling price of the bonds

Short Answer

Expert verified

The selling price of the bond will be $2,153,729.5

Step by step solution

01

Given Information

Bondfacevalue=$2,000,000Bondinterestrate=11%Marketinterestrate=10%Bondtenureinyears=15

02

Computation of selling price of the bonds

Sellingpriceofthebonds=Par(maturity)value+Interest(Annuity)=2,000,000脳0.23138+110,000脳15.37245=462,760+1,690,969.5=$2,153,729.5

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