Question

Leahy Corp. sells $300,000 of bonds to private investors. The bonds are due in five years, have an 6% coupon rate, and interest is paid semiannually. The bonds were sold to yield 4%. What proceeds does Leahy receive from the investors (exclude any issuance costs/fees paid to bankers) (hint: refresh your bond pricing knowledge from managerial finance)? Question 10 options: a) $274,345 b) $300,000 c) $299,999 d) $326,948

Answer 1

Answer:

$326,948 ,

Explanation:

The computation of the proceeds leahy received from the investors is shown below:

Present value of the bonds = Stated semi-annual interest x PVIFA 4%, 10 years + Maturity amount x PVIF 4%, 10 years

= ($300,000 × 6% ÷ 2) ×  8.98258 + $300,000 x 0.820348

= $326,948

Refer to the PVIFA table and PVIF table

Moreover in the semi annual, the rate of interest is half and the time period is doubles