Question

On January 1, 2020, Larkspur Inc. issued $580,000 of 4-year, 4% bonds to yield a market...

On January 1, 2020, Larkspur Inc. issued $580,000 of 4-year, 4% bonds to yield a market interest rate of 5%. Interest is paid every quarter on January 1, April 1, July 1, and October 1. Larkspur has a calendar year end.

After recording the December 31, 2021 accrual for quarterly interest, and making the payment on January 1, 2022, all the bonds were redeemed at 103.

(a)

Use Excel or a financial calculator to determine how much the company received from the sale of these bonds.
The company received $

  

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Answer #1
The company received 559091
Workings:
Quarterly Cash interest 5800 =580000*4%*3/12
Quarterly market rate 1.25% =5%/4
Number of periods 16 =4*4
Amount PV factor 1.25% Present value
Cash interest 5800 14.42029 83638
Principal 580000 0.81975 475453
Total 559091
PV factor 1.25%:
Cash interest 14.42029 =(1-(1.0125)^-16)/0.0125
Principal 0.81975 =1/1.0125^16
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