On January 1, 2020, Vaughn Corporation purchased 323 of the $1,000 face value, 9%, 10-year bonds of Walters Inc. The bonds matur

Question

3 years ago

15

On January 1, 2020, Vaughn Corporation purchased 323 of the $1,000 face value, 9%, 10-year bonds of Walters Inc. The bonds matur

e on January 1, 2030, and pay interest annually beginning January 1, 2021. Vaughn purchased the bonds to yield 11%. How much did Vaughn pay for the bonds?

Business

1 answer:

ryzh [129] · Answer 1 · 2022-03-13T19:42:32+03:00

Answer:

$284,954.63

Explanation:

in order to determine the market price of the bonds we must calculate the present value of the face value and coupon payments

PV of face value = $323,000 / (1 + 11%)¹⁰ = $113,755.59

PV of coupon payments = $29,070 x 5.8892 (PVIFA, 11%, 10 periods) = $171,199.04

total market value = $284,954.63