Question

Bonita Industries wishes to issue $6900000 (par value) of its 7%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 12%. Using the interest factors below, compute the amount that Bonita will realize from the sale (issuance) of the bonds.

Answer 1

Answer:

The amount that Bonita will realize from the sale is  $4,950,673.06  

Explanation:

Hi, first, we need to find the amount to be paid by the bond (coupon), that is 7%*$6,900,000=$483,000. Now, we can use the following formula.

$Price=\frac{Coupon((1+YTM)^{n}-1) }{YTM(1+YTM)^{n} } +\frac{FaceValue}{(1+YTM)^{n} }$

Where:

YTM = 0.12

n = 10

Face Value = $6,900,000

Coupon = $483,000

Price = what Bonita

Therefore:

$Price=\frac{483,000((1+0.12)^{10}-1) }{0.12(1+0.12)^{10} } +\frac{6,900,000}{(1+0.12)^{10} }=4,950,673.06$

Best of luck.