Question

# Sunland Company is about to issue \$450,000 of 10-year bonds paying an 11% interest rate, with...

Sunland Company is about to issue \$450,000 of 10-year bonds paying an 11% interest rate, with interest payable annually. The discount rate for such securities is 13%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Sunland expect to receive from the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,575.)

A bond's issuance price is equal to the present value of its principal plus present value of its interest payments.

Present Value of principal = \$450,000 * PV factor (n = 10, i = 11%) = \$450,000 * 0.35218 = \$158,481

Present Value of Interest = Annual interest * PV of annuity factor (n = 10, i = 11%) = (\$450,000 * 11%) * 5.88923 = \$49,500 * 5.88923 = \$291,516.89

Bond Issuance price = PV of principal + PV of Interest = \$158,481 + \$291,517 = \$449,978

Sunland can expect to receive \$449,998 from the sale of these bonds.

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