Question

[The following information applies to the questions displayed below.] On January 1, 2021, Frontier World issues $40.1 million of 9% bonds, due in 20 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.

1-8. If the market rate is 8%, 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. Round your final answers to the nearest whole dollar.) Bond Characteristics Amount Face amount 40,100,000 Interest payment Periods to maturity Market interest rate Issue price 1-b. The bonds will issue at A Discount A Premium Face amount

Answer 1

Solution 1a:

Computation of bond price
Table values are based on:
n=	40
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.20829	$40,100,000.00	$8,352,391
Interest (Annuity)	19.79277	$1,804,500.00	$35,716,060
Price of bonds			$44,068,451

Bond Characteristics	Amount
Face amount	$40,100,000.00
Interest payment	$1,804,500.00
Market interest rate	4.0%
Periods to maturity	40
Issue price	$44,068,451

Solution 1b:

Bond will be issued at premium

Solution 2a:

Computation of bond price
Table values are based on:
n=	40
i=	4.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.17193	$40,100,000.00	$6,894,341
Interest (Annuity)	18.40158	$1,804,500.00	$33,205,659
Price of bonds			$40,100,000

Bond Characteristics	Amount
Face amount	$40,100,000.00
Interest payment	$1,804,500.00
Market interest rate	4.5%
Periods to maturity	40
Issue price	$40,100,000

Solution 2b:

Bond will issue at face amount.

Solution 3a:

Computation of bond price
Table values are based on:
n=	40
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.14205	$40,100,000.00	$5,696,032
Interest (Annuity)	17.15909	$1,804,500.00	$30,963,571
Price of bonds			$36,659,603

Bond Characteristics	Amount
Face amount	$40,100,000.00
Interest payment	$1,804,500.00
Market interest rate	5.0%
Periods to maturity	40
Issue price	$36,659,603

Solution 3b:

Bond will issue at a discount.