CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT URCES Brief Exercise G-14 Sheri

Question

CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT URCES Brief Exercise G-14 Sheridan Company is about to issue $258,000 of 10-year bonds paying an 9% interest rate, with interest payable semiannually. The discount rate for such securities is 8%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. How much can Sheridan expect to receive for the sale of these bonds? (Round answer to O decimal places, e.g Study 2,525 Sheridan can expect to receive LINK TO TEXT Question Attempts: o of 2 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

Sheridan can expect to receive the following amount

=> [(present value of annuity factor) * (interest amount)] + [(present value factor) *(face value of bonds issued)]

here,

Present value of annuity factor = [1 - (1+r)^(-n)/r]

here,

r= 8% per annum =>4% for semi annual period.....(since interest is paid semi annually)

n= 10 years* 2 semi annual periods

=>20 periods.

=> [1 - (1.04)^(-20)]/ 0.04

=>[ 1- 0.45638695]/0.04

=>0.543613/0.04

=>13.590325.

Interest amount = $258,000 * 9%*1/2 =>$11,610.

Present value factor = 1 /(1+r)^n

=> 1 /(1.04)^20

=>0.45638695.

face value of bonds = $258,000.

=> amount that can be received = [(13.590325) * ($11,610)] +[0.45638695*$258,000]

=>$157,783.673+$117,747.833

=>$275,532.....(rouded off to nearest whole dollar).

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