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Sampras Inc
Sampras Inc. is issuing $35,000,000 of 7% bonds due in 25 years with interest payable at year end. The current market rate of interest for bonds of similar risk is 6%. What amount will Sampras receive when it issues the bonds?
Expert Solution
Required: Computation of bond price
| Table values are based on: | |||
| n = | 25 | ||
| i = | 6% | ||
| Cash flow | Table value | Amount | Present value |
| Par (Maturity) value | 0.23300 | $35,000,000 | $8,155,000 |
| Interest (Annuity) | 12.78336 | $2,450,000 | $31,319,232 |
| Price of bonds | $39,474,232 |
Interest = $35,000,000 * 7% = $2,450,000
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