Question

8. ABC Company will issue $5,000,000 in 6%, 10-year bonds when the market rate of interest is 8%. Determine how much cash ABC Company will realize from the bond issue.

Answer 1

Calculation of cash realization from the bond issue:

Here, 6% is interest rate

8% is market rate of interest ie (i)

n= 10 years

Now,

Interest Amount : $5,000,000 * 6% = $3,00,000

Particulars	Amount (in $)
Present Value : $5,000,000 * .4632	$2,316,000
Present Value Annuity (for interest amount) : $3,00,000 * 6.7101	$2,013,030
Bond Issue Price	$4,329,030

Therefore, ABC company will realize $4,329,030 cash from the Bond price.

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