Answer:
Correct option is (A)
Explanation:
Given:
Bonds sold by Reed corp. (FV) = $500,000
Yield to maturity (rate) = 0.04 annual or 0.02 semi-annual
Coupon rate = 0.06 annual or 0.03 semi annual
Coupon payment (pmt) = 0.03 × 500,000 = $15,000
Time period (nper) = 5 × 2 = 10 periods
It is required to compute proceeds from the sale which is PV of bond. PV can be computed using spreadsheet function =PV(rate,nper,pmt,FV)
Present value of bonds or proceeds from bond is $544,912.93 or $544,913.
Answer:
Option A, [tex]$\$ 544,913[/tex] will Reed receives from the investors.
Explanation:
Given,
Bonds sold by Reed corp. sells (FV) = $
Yield to maturity (rate) [tex]=$4 \%$[/tex]
Coupon rate [tex]=$6 \%$[/tex]
Step 1:
To find Coupon payment
[tex]=[/tex]Coupon rate × Bonds
[tex]= $0.03 \times 500,000[/tex]
[tex]=\$ 15,000$[/tex]
To calculate time period
[tex]=[/tex] Time ×Yield rate.
[tex]$=5 \times 2[/tex]
[tex]=10[/tex] periods.
Present value of bonds are from:
[tex]$\$ 544,912.93$[/tex] or [tex]$\$ 544,913[/tex].
Therefore, Option A is the correct answer.
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