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Homework answers / question archive / Larkspur Inc
Larkspur Inc. issues $1,700,000 of 7% bonds due in 15 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 11%.
What amount will Larkspur receive when it issues the bonds? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and final answer to 0 decimal places, e.g. 458,581.)
Amount received by Larkspur when bonds were issued
We can calculate the present value by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Present value
Rate = 11%
Nper = 15 periods
Pmt = Coupon payment = $1,700,000*7% = $119,000
FV = $1,700,000
Substituting the values in formula:
=-pv(11%,15,119000,1700000)
= $1,211,020.87 Or $1,211,021
