Reed corp. sells $500,000 of bonds to private investors. the bonds are due in five years, have an 6% coupon rate, and interest is paid semiannually. the bonds were sold to yield 4%. what proceeds does reed receive from the investors? select one: a. $544,913 b. $474,345 c. $526,948 d. $499,999 e. none of the above

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.

Option A, will Reed receives from the investors.

Explanation:

Given,

Bonds sold by Reed corp. sells (FV) = $

Yield to maturity (rate) 

Coupon rate

Step 1:

To find Coupon payment  

Coupon rate × Bonds

To calculate time period  

Time ×Yield rate.

periods.    

Present value of bonds are from:        

or .          

Therefore, Option A is the correct answer.

Learn more about bonds, refer:

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