Question

Waltman Company manufactures exercise equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3150000 of 15% bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 14%. What is the selling price of the bonds? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Answer 1

Bond Selling Price	$3,345,587
Working
	Bond Price formula	=C*[1-[1/(1+i)n]/i+M/(1+i)n
	Bond Selling Price	= 236250*(1-1/(1+0.07)^30)/0.07+3150000/(1+0.07)^30	=	3,345,587
		= 2,933,808+ 411,779
	C=	(3,150,000*15%)/2	=	236,250
	M=	3,150,000
	i	14%
	Half yearly	7%
	n	15*2=30