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Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $14,000,000 of 10-year, 11% bonds at a market (effective) interest rate of 9%, receiving cash of $15,821,074. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Compute the price of $15,821,074 received for the bonds by using the present value tables.

Present value of the face amount:
Present value of the semiannual interest payments:
Price received for the bonds:

User BryanJ
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Answer:

Present value of the face amount:

The face amount of the bonds is $14,000,000. To calculate the present value of the face amount, we need to use the present value of 1 table. The present value factor of $1 for 10 periods at 9% is 0.42240. Therefore, the present value of the face amount is:

Present value of face amount = $14,000,000 x 0.42240 = $5,913,600

Present value of the semiannual interest payments:

The bonds have a stated interest rate of 11%, and the interest is paid semiannually. Therefore, the periodic interest rate is 5.5% (11% / 2). The semiannual interest payment is calculated as:

Semiannual interest payment = Face amount of bonds x Periodic interest rate

Semiannual interest payment = $14,000,000 x 5.5% = $770,000

To calculate the present value of the semiannual interest payments, we need to use the present value of an annuity of 1 table. The present value factor of an annuity of 1 for 20 periods at 4.5% is 12.92527. Therefore, the present value of the semiannual interest payments is:

Present value of semiannual interest payments = $770,000 x 12.92527 = $9,953,482.90

Price received for the bonds:

The price received for the bonds is the sum of the present value of the face amount and the present value of the semiannual interest payments. Therefore, the price received for the bonds is:

Price received for the bonds = Present value of face amount + Present value of semiannual interest payments

Price received for the bonds = $5,913,600 + $9,953,482.90 = $15,867,082.90

Therefore, the price received for the bonds is $15,867,082.90.

Step-by-step explanation:

User Felixfbecker
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