On January 1, 2013, Drennen, Inc., issued $2.6 million face amount of 11-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay semiannual interest each June 30 and December 31. Calculate the proceeds (issue price) of Drennen, Inc.'s, bonds on January 1, 2013, assuming that the bonds were sold to provide a market rate of return to the investor
On January 1, 2013, Drennen, Inc., issued $2.6 million face amount of 11-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay semiannual interest each June 30 and December 31. Calculate the proceeds (issue price) of Drennen, Inc.'s, bonds on January 1, 2013, assuming that the bonds were sold to provide a market rate of return to the investor.
As of Jan. 1, 2013, if the bonds were sold at a yield of 16%, then the price of the bonds would be
=$89.799 per $100. Therefore, Drennen Inc.'s $2.6 million bonds would have raised for the company a total of $89.799 X $2,600,000=$2,334,774.00.
