Question

Bonita Industries wishes to issue $6900000 (par value) of its 7%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 12%. Using the interest factors below, compute the amount that Bonita will realize from the sale (issuance) of the bonds.

Answer 1

The amount that Bonita will realize from the sale is $4,950,673.06

Step-by-step explanation:

Hi, first, we need to find the amount to be paid by the bond (coupon), that is 7%*$6,900,000=$483,000. Now, we can use the following formula.

`Price=(Coupon((1+YTM)^(n)-1) )/(YTM(1+YTM)^(n) ) +(FaceValue)/((1+YTM)^(n) )`

Where:

YTM = 0.12

n = 10

Face Value = $6,900,000

Coupon = $483,000

Price = what Bonita

Therefore:

`Price=(483,000((1+0.12)^(10)-1) )/(0.12(1+0.12)^(10) ) +(6,900,000)/((1+0.12)^(10) )=4,950,673.06`

Best of luck.