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On January 2, 2020, Crane Company wishes to issue $6400000 (par value) of its 6%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 11%. Using the interest factors below, compute the amount that Crane will realize from the sale (issuance) of the bonds. Present value of 1 at 6% for 10 periods 0.5584 Present value of 1 at 11% for 10 periods 0.3522 Present value of an ordinary annuity at 6% for 10 periods 7.3601 Present value of an ordinary annuity at 11% for 10 periods 5.8892

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jepessoa

Answer:

$45,155,328

Explanation:

the bonds will yield $3,840,000 per year during 10 years

and at the end of year 10 (maturity date) the face value is $64,000,000

the present value of the annuity = coupon payment x present value of an ordinary annuity at 11% for 10 periods = $3,840,000 x 5.8892 = $22.614,528

the present value of face value at maturity date = face value x present value of 1 at 11% for 10 periods = $64,000,000 x 0.3522 = $22,540,800

present value of the bonds = $22.614,528 + $22,540,800 = $45,155,328

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