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2 May, 01:58

Whipple Corp. just issued 280,000 bonds with a coupon rate of 6.02 percent paid semiannually that mature in 25 years. The bonds have a YTM of 6.46 percent and have a par value of $2,000. How much money was raised from the sale of the bonds?

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  1. 2 May, 02:02
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    529.64 million or $529,639,600 was received from the sale of bonds.

    Explanation:

    Money Raised from the sale is based on the current value of the bond. Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula:

    Price of the Bond = C x [ (1 - (1 + r) ^-n) / r ] + [ F / (1 + r) ^n ]

    As per given data

    Face Value = $2,000

    Coupon payment = $2,000 x 6.02% = $120.4 / 2 = $60.2 semiannually

    Number of period = n = 25 years x 2 period per year = 50 period

    Yield to maturity = 6.46% annually = 6.46% / 2 = 3.23% semiannually

    Price of the Bond = C x [ (1 - (1 + r) ^-n) / r ] + [ F / (1 + r) ^n ]

    Price of the Bond = $60.2 x [ (1 - (1 + 3.23%) ^-50) / 3.23% ] + [ 2,000 / (1 + 3.23%) ^50 ]

    Price of the Bond = $1,483.51 + $408.06 = $1,891.57

    Cash received = Number of bonds x Price per bond = 280,000 x $1,891.57 = $529,639,600
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