Question

Whipple Corp. just issued 275,000 bonds with a coupon rate of 5.99 percent paid semiannually that mature in 20 years. The bonds have a YTM of 6.43 percent and have a par value of $2,000. How much money was raised from the sale of the bonds

Answer 1

It was raised $236,009.52

Step-by-step explanation:

The YTM is 6.43

so we need to calculate the market price of the bond using this rate.

Market price will be equal to the cash raised from the sale.

1st annuity of 20 years semiannual payment of

275,000 x 0.0599/2 = 8236.25

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

`8,236.25 * (1-(1+0.0643/2)^(-20*2) )/(0.0643/2) = PV\\`

PV = 183,932.289662

2nd we have to calculate the prsent value of the redeemption of the bond

`(Principal)/((1 + rate)^(time) ) = PV`

`(275,000)/((1 + 0.0643)^(20) ) = PV`

PV = 79,0773.23051

Now we add both values to get the cash proceeds from the bond

79,0773.20351 + 183,932.289662 = 236,009.52