Question

Dempsey Railroad Co. is about to issue $286,000 of 10-year bonds paying an 11% interest rate, with interest payable semiannually. The discount rate for such securities is 12%.

Answer 1

Semiannual interest =286000*11%*6/12= 15730

semiannual months : 10*2 =20

semiannual yield : 12*6/12 =6%

Issue price = [PVA 6%,20 *Interest ]+ [PVF6%,20*Face value]

       =[11.46992*15730]+[.31180*286000]

        = 180421.84+ 89174.8

         =$ 269596.64

**Present value annuity factor and present value factor can be find from there table respectively or using financial calculator .

where i = 6%

n=20

PMT:15730

FV:286000