1. The company is about to issue 2,000,000 of 5-year, 12% bonds. Interest will be...
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1. The company is about to issue 2,000,000 of 5-year, 12% bonds. Interest will be paid semi-annually. The market interest rate for such securities is 10%. How much can The Company expect to receive from the sale (issuance) of these bonds?
Can you please explain the steps you used to get this answer? The answer I got is 3,081,035, but I'm not sure if thats right.
I found this by finding the PV principle (5% x 10 periods table factor) 0.61391x 2,000,000 to get 1,227,820.
Then for PV Interest payments I used contract rate 12% x 2,000,000 to get 240,000 annual interest. I multiplied the 240,000 by the PV annuity table factor 7.72173 (10 periods x 5%0 to get 1,853,215.
I just don't know if my answer is right because almost a million dollars extra value seemed too far off. If you could please explain the process/where I went wrong, that would be greatly appreciated! Thank you
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