Question

Bonita Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,409,700 of 10% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 8%.

Answer 1

Amount	PV factor 4%	Present value
Semi-annual interest	170485	17.292	2948031.735
Principal	3409700	0.30832	1051278.704
Total			3999310.439
Selling price of the bonds	3999310

Semi-annual interest	170485		(3409700*10%/2)
	PV factor 4%
Semi-annual interest	17.292	(1-(1.04)^-30)/0.04
Principal	0.30832	1/1.04^30