Broad Horizons, Inc. plans to issue 20-year notes with a face value of $14,400,000 and an annual coupon rate of 5.5%. The market rate of interest is 4%. Interest payments will be made semi-annually.
a. Compute the market value of the bonds.
b. Assume the market rate remains at 4% after 5 years. How much cash will Bright Future, Inc. need to pay off the notes at this time?

Question

Broad Horizons, Inc. plans to issue 20-year notes with a face value of $14,400,000 and an annual coupon rate of 5.5%. The market rate of interest is 4%. Interest payments will be made semi-annually. 
a. Compute the market value of the bonds.
b. Assume the market rate remains at 4% after 5 years. How much cash will Bright Future, Inc. need to pay off the notes at this time?

Quizplus · Accepted Answer

The Answer of Broad Horizons, Inc. plans to issue 20-year notes with a face value of $14,400,000 and an annual coupon rate of 5.5%. The market rate of interest is 4%. Interest payments will be made semi-annually. 
a. Compute the market value of the bonds.
b. Assume the market rate remains at 4% after 5 years. How much cash will Bright Future, Inc. need to pay off the notes at this time?