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Basic concepts related to Bonds

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Please help with the following finance problems.

Assume Sherry Company sells 2,500 of its five-year, $1,000 bonds paying 12 percent interest at 103.

A. How much cash will the company receive from the bond sale?

B. How much cash will the company pay to all of the bondholders each year as interest?

C. Determine the total cash payments the company must make for each $1,000 bond to pay the bondholders their return on investment (interest) and return of their investment.

D. Is the effective (market) interest rate less than, euql to, or greater than 12 percent? How can you determine this?

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Solution Summary

The following solution describes the steps to calculate cash received by a company on selling bonds and amount paid by the company to the bondholders.

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A. How much cash will the company receive from the bond sale?

Company is selling bonds at 103% of par value.
Sale price of a bond=$1000*103%=$1030
Total bond sold=2500
Total Cash received=1030*2500=$2,575,000

B. How much cash will the company pay to all of the ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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