Question

On December 31, 2021, Interlink Communications issued 6% stated rate bonds with a face amount of $107 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Determine the price of the bonds on December 31, 2021, assuming that the market rate of interest for similar bonds was 7%. (Round your final answers to nearest whole dollar amount.)

	Table values are based on: n = i = Cash Flow Amount Present Value Interest Principal Price of bonds

Answer 1

Answer:

Table values are based on:
n=	30
i=	7%
Cash Flow	Amount	Present Value
Interest	$6,420,000	$79,666,037
Principal	$107,000,000	$14,056,590
Price of bonds		$93,722,627

n = number of years are 30 years (From December 31,2021 to December 31,2051)

i=Market rate

Calculations:

Interest:

Interest payment = Face value of the bond x Interest rate

= $107,000,000 x 6%

= 6,420,000

Price of the bonds:

Present value of the interest payments	$79,666,037
[6,420,000 x 12.40904 present value annuity factor (7%, 30 years)]
Present value of the face value of the bond	$14,056,590
[107,000,000 x 0.13137 present value factor (7%,30 years]
Price of the bonds	$93,722,627

Note: present value factor taken from ' Present value tables'.