Question

Collins Corp. sells $400,000 of bonds to private investors. The bonds are due in five years, have an 4.1% coupon rate, and interest is paid semiannually. The bonds were sold to yield 6%. What proceeds does Collins receive from the investors

Answer 1

Answer: $367,555

Explanation:

The following information can be gotten from the question

Face Value of the bond = $400,000

Coupon rate = 4.1%

Annual Coupon will be calculated as:

= 4.1%*$400,000

= $16,400

Semi-annual Coupon:

= $16400/2

= $8,200

Annual YTM = 6%

Semi-annual YTM = 6%/2 = 3%

Bond Proceed will now be:

= $8,200 × PVIFA(3%, 10) + $400,000 × PVIF(3%, 10)

= $8,200 × (1-(1/1.03)^10)/0.03 + 400,000/1.03^10

Bond Proceed = $367,555

Collins receive $367,555 from the investors