Question

On January 1, 2018, Frontier World issues $40.5 million of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. The proceeds will be used to build a new ride that combines a roller coaster, a water ride, a dark tunnel, and the great smell of outdoor barbeque, all in one ride.

value:
1.17 points

Required:        

1-a. If the market rate is 6%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Enter your answers in dollars not in millions. Round "Market interest rate" to 1 decimal place.)

Answer 1

Solution 1a:

Computation of bond price
Table values are based on:
n=	20
i=	3.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.55368	$40,500,000.00	$22,424,040
Interest (Annuity)	14.87747	$1,417,500.00	$21,088,814
Price of bonds			$43,512,854