Question

Required information [The following information applies to the questions displayed below.) On January 1, 2021, Frontier World issues $39.5 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. 2-a. 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.) Amount 39,500,000 $ Bond Characteristics Face amount Interest payment Periods to maturity Market interest rate Issue price 2-b. The bonds will issue at A Discount A Premium Face amount

Answer 1

Solution:

Chart Values are based on:
n= (15 Years*2)	30	Half years
i= (8%/2)	4%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Par (Maturity) Value	0.30832	*	$3,95,00,000	=	$1,21,78,587
Interest (Annuity) [$39500000*8%*6/12]	17.29203	*	$15,80,000	=	$2,73,21,413
Price of Bonds					$3,95,00,000

Face amount	$3,95,00,000
Interest Payment ($39500000*8%*6/12)	$15,80,000
Periods to maturity	30
Market Interest rate	4%
Issue price	$3,95,00,000

Solution 2-b:

The bonds will issue at Face amount.