Bramble Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested the construction of a new plant to meet the increasing demand for the company's bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,478,400 of 11% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 10%.
As the controller of the company, determine the selling price of the bonds.
Companies issue bonds to raise funds for their long-term goals, like constructing new plants to meet their customers' increasing demands for their products.
Answer and Explanation: 1
To determine the selling price of the bonds, calculate the present values of the coupon payments and the face value by considering the following...
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fromChapter 1 / Lesson 5
Bonds are loans with fixed interest rates and time periods, and are valued by factoring in the future value of the bond and comparing it to the general market. Discover how to price bonds and see how factors like coupon rate, duration, and credit quality are used when calculating the worth of a bond.