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Collins Corp. sells $400,000 of bonds to private investors. The bonds are due in five years, have...

Question:

Collins Corp. sells $400,000 of bonds to private investors.

The bonds are due in five years, have a 6% coupon rate and interest is paid semiannually.

The bonds were sold to yield 8%.

What proceeds does Collins receive from the investors?

A. $400,000

B. $367,555

C. $434,119

D. $388,000

E. None of the above

Issuing bonds at a discount or a premium:

When bonds are sold at a discount, it means that the net proceeds from the bond issuance is less than the face amount of the bonds. When bonds are sold at a premium, it means that the net proceeds from the bond issuance is greater than the face amount of the bonds.

Answer and Explanation: 1

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What proceeds does Collins receive from the investors?

  • Answer: B. $367,555

See detailed computation below:

Step 1. Determine the present value of...

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Issuing Bonds at a Discount or a Premium

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Chapter 10 / Lesson 10
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In this lesson, we'll define a bond and discuss how bonds are issued at a premium and discount. You'll also learn the advantages and disadvantages of each.


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