Question

The following information applies to the questions displayed below.] On January 1, 2018, Water World issues $24.8 million of2. value: Required information 7.69 points 2-a. If the market rate is 6%, calculate the issue price. (FV of $1, PV of $1, FVA3. value: 7.69 points Required information 3-a. If the market rate is 7%, calculate the issue price. (FV of $1, PV of $1, FVAplease answer parts 1,2,3 and explain how you got to answer

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Correct Answer:

Requirement 1:

Bond Characteristics

Amount

Face amount

$ 24,800,000

Interest payment

6%

Market interest rate

5%

Periods to maturity

40

Issue price

$ 27,912,744

The bond will issue at Premium

Working:

Annually

Formula Applied

Face Value of Bond

$                    24,800,000

Interest Annually @ 6 % (6/200 * 24,800,000)

$                          744,000

(Face Value of Bonds * Coupon rate )

Semi-Annual Effective interest Rate ® ( 5%/2)

0.025

5%

Time Period (n) 20 years

40.00

20

Present Value of Face Value of Bond

$         9,236,279.46771

Face Value/(1+r%)^2n

Present Value of Interest payment

$              18,676,464.64

Interest * ((1-(1+r)^-n)/r)

Issue Price Of Bond

$                    27,912,744

PV of Face value of bond + PV of Interest Paid Annually

Premium or (Discount)

$                      3,112,744

Issue Price - Face Value of Bonds

Requirement 2:

Bond Characteristics

Amount

Face amount

$ 24,800,000

Interest payment

6%

Market interest rate

6%

Periods to maturity

40.00

Issue price

$ 24,800,000

The bond will issue at par

Working:

Annually

Formula Applied

Face Value of Bond

$                    24,800,000

Interest Annually @ 6 % (6/200 * 24,800,000)

$                          744,000

(Face Value of Bonds * Coupon rate )

Semi-Annual Effective interest Rate ® ( 6%/2)

0.030

6%

Time Period (n) 20 years

40.00

20

Present Value of Face Value of Bond

$         7,602,609.65119

Face Value/(1+r%)^2n

Present Value of Interest payment

$              17,197,390.35

Interest * ((1-(1+r)^-n)/r)

Issue Price Of Bond

$                    24,800,000

PV of Face value of bond + PV of Interest Paid Annually

Premium or (Discount)

$                                      -  

Issue Price - Face Value of Bonds

Requirement 3:

Bond Characteristics

Amount

Face amount

$ 24,800,000

Interest payment

6%

Market interest rate

7%

Periods to maturity

40.00

Issue price

$ 22,151,971

The bond will issue at Discount

Working:

Annually

Formula Applied

Face Value of Bond

$                    24,800,000

Interest Annually @ 6 % (6/200 * 24,800,000)

$                          744,000

(Face Value of Bonds * Coupon rate )

Semi-Annual Effective interest Rate ® ( 7%/2)

0.035

7%

Time Period (n) 20 years

40.00

20

Present Value of Face Value of Bond

$         6,263,797.21123

Face Value/(1+r%)^2n

Present Value of Interest payment

$              15,888,173.82

Interest * ((1-(1+r)^-n)/r)

Issue Price Of Bond

$                    22,151,971

PV of Face value of bond + PV of Interest Paid Annually

Premium or (Discount)

$                    (2,648,029)

Issue Price - Face Value of Bonds

End of answer.

Please give a thumbs-up, it will be highly appreciated.

Thanks.

Add a comment
Know the answer?
Add Answer to:
please answer parts 1,2,3 and explain how you got to answer The following information applies to...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
Active Questions
ADVERTISEMENT