Question

Crane Railroad Co. is about to issue $300,000 of 6-year bonds paying an 9X interest rate, with interest payable semiannually. The discount rate for such securities is 8% Click below to view the factor tables. Table 1. Future Value of 1 Table 2. Future Value of an Annuity of 1 Table 3. Present Value of 1 Table 4. Present Value of an Annuity of 1 (For calculation purposes, use 5 decimal places as displayed in the factor table provided) How much can Crane expect to receive for the sale of these bonds? (Round answer to decimal places es. 2,525.) Crane can expect to receive $

Answer 1

The amount that Crane expect to receive for the sale of the bond is calculated below:

A) Present value of the Principal amount:

Principal Amount: $300,000

Interest Rate = 9% = 4.5%(Semi - Annually)

Period = 6 Years = 12 (Periods - Semi - Annually)

Discount Rate = 8% = 4%(Semi - Annually)

Present Value of Principal amount = $300,000*PV(4%, 12 Periods)

= $300,000*0.624597

=$187,379

B) Present value of Annuity for interest amount:

Principal Amount: $300,000

Interest Rate = 9% = 4.5%(Semi - Annually)

Period = 6 Years = 12(Periods - Semi - Annually)

Discount Rate = 8% = 4%(Semi - Annually)

Semi-annual Interest = $300,000*4.5% = $13,500

Present value of Annuity for interest amount = $13,500*PVIFA((4%, 12 Periods)

  =$13,500*9.38508

=$126,700

C)The amount that Crane expect to receive for the sale of the bond =

Present value of the Principal amount + Present value of Annuity for interest amount

The amount that Crane expect to receive for the sale of the bond = $187,379 + $126,700

= $314,079

  The amount that Crane expect to receive for the sale of the bond is $314,079