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Bramble Company issues $26200000, 7%, 5-year bonds dated January 1, 2020 on January 1, 2020. The...

Bramble Company issues $26200000, 7%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 6%. What are the proceeds from the bond issue?

ff 3.0% 3.5% 6% 7%
Present value of a single sum for 5 periods

0.86261

 0.84197 0.74726 0.71299
Present value of a single sum for 10 periods 0.74409 0.70892 0.55839 0.50835
Present value of an annuity for 5 periods 4.57971 4.51505 4.21236 4.10020
Present value of an annuity for 10 periods 8.53020 8.31661 7.36009 7.02358

27317351

$27305776

$27309846

$26200000

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Homework Answers

Answer #1

Let us go by the logic

The bonds are paying 7% whereas yield is 6%. In other words, if an investor is getting a higher return, he would be willing to pay extra. So the proceeds would be higher than 26,200,000

The proceeds would be the present value of the interest payment as well as principal repayment

Particular Amount PV Factor Present Value
for 3.5%
Interest 917000 8.5302 7822193.4
Principal 26200000 0.74409 19495158
       27,317,351
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