Question

# Metlock Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested...

Metlock Inc. manufactures cycling 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 bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing \$3409700 of 10% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 8%.

As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

 Selling price of the bonds \$enter the Selling price of the bonds in dollars rounded to 0 decimal places

Face Value of Bonds = \$3,409,700

Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5% * \$3,409,700
Semiannual Coupon = \$170,485

Annual Interest Rate = 8%
Semiannual Interest Rate = 4%

Time to Maturity = 15 years
Semiannual Period = 30

Selling Price of Bonds = \$170,485 * PVA of \$1 (4%, 30) + \$3,409,700 * PV of \$1 (4%, 30)
Selling Price of Bonds = \$170,485 * 17.29203 + \$3,409,700 * 0.30832
Selling Price of Bonds = \$3,999,310

Selling price of the bonds is \$3,999,310