ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to the release of a nuclear weapon. The company is in need of additional funding and issues a series of $1,000 face value bonds that pay a nominal annual rate of 6% with quarterly payments. The bond matures in 6 years.

**Educational Context:**

This text provides an example of how a company might finance advanced technology projects through bonds. Bonds are a form of debt investment where the investor loans money to an entity for a defined period at a fixed interest rate. Here, the company issues bonds with a face value of $1,000, an annual interest rate of 6%, paid quarterly, meaning investors receive interest payments every three months. After 6 years, when the bond matures, the initial loan amount is returned to the bondholder. This method is often used by companies seeking to raise capital for significant projects, like developing critical defense technology.
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Transcribed Image Text:A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to the release of a nuclear weapon. The company is in need of additional funding and issues a series of $1,000 face value bonds that pay a nominal annual rate of 6% with quarterly payments. The bond matures in 6 years. **Educational Context:** This text provides an example of how a company might finance advanced technology projects through bonds. Bonds are a form of debt investment where the investor loans money to an entity for a defined period at a fixed interest rate. Here, the company issues bonds with a face value of $1,000, an annual interest rate of 6%, paid quarterly, meaning investors receive interest payments every three months. After 6 years, when the bond matures, the initial loan amount is returned to the bondholder. This method is often used by companies seeking to raise capital for significant projects, like developing critical defense technology.
If your desired rate of return is 12% compounded quarterly and you plan to keep the bond until maturity, what would be the purchase price for the bond?

Click [here](#) to access the TVM Factor Table calculator.

\$ __________

Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.05.
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Transcribed Image Text:If your desired rate of return is 12% compounded quarterly and you plan to keep the bond until maturity, what would be the purchase price for the bond? Click [here](#) to access the TVM Factor Table calculator. \$ __________ Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.05.
Expert Solution
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Step 1

Given 

The face value of the bond is $1000

The coupon rate is 6% with quarterly payment 

The bond matures in 6 years 

We have to calculate the price of the bond if the decried rate of return is 12% compounded quarterly 

The price of the bond is the present value of all coupon payments and face value. 

P=CP|A,i,n+FV(P|F,i,n)

 

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