Question

Required information The following information applies to the questions displayed below.] On January 1, 2021. Frontier World issues $39.8 million of 8% bonds, due in 15 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. Required: 1-a. If the market rate is 7%, calculate the issue price. V of $1. PV of $1 EVA of $1. and PVA OL51) (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 Face amount Amount 39,800,000 1502 0001 Interest payment Ponds to maturity Marketinterest rate issue price

Answer 1

Semi annual interest payment = 39,800,000 x 8% x 6/12

= $1,592,000

Periods to maturity = 30

Market interest rate = 7%/2

= 3.5%

Present value of principal to be received at the maturity = Par value of bonds x Present value factor (r%, n)

= 39,800,000 x Present value factor (3.5%, 30)

= 39,800,000 x 0.35628

= $14,179,944

Present value of interest to be received periodically over the term of the bonds = Interest x Present value annuity factor (r%, n)

= 1,592,000 x Present value annuity factor (3.5%, 30)

= 1,592,000 x 18.39205

= $29,280,144

Issue price of bond = Present value of principal to be received at the maturity + Present value of interest to be received periodically over the term of the bonds

= $14,179,944 + $29,280,144

= $43,460,088

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