Question

The following information applies to the questions displayed below.] On January 1, 2018, Water World issues $24.8 million of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Water World intends to use the funds to build the world's largest water avalanche and the "tornado"- a giant outdoor vortex in which riders spin in progressively smaller and faster circles until they drop through a small tunnel at the bottom. 1. value: Required information 7.69 points Required: 1-a. If the market rate is 5%, 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. Round "Market interest rate" to 1 decimal place. Enter your answers in dollars not in millions.) Bond Characteristics Amount 24,800,000 ... Face amount . . Interest payment $ 6: Market interest rate Periods to maturity Issue price 1-b. The bonds will issue at A Discount Face amount A Premium
please answer parts 1,2,3 and explain how you got to answer

Answer 1

Correct Answer:

Requirement 1:

Bond Characteristics	Amount
Face amount	$ 24,800,000
Interest payment	6%
Market interest rate	5%
Periods to maturity	40
Issue price	$ 27,912,744

The bond will issue at Premium

Working:

Annually		Formula Applied
Face Value of Bond	$                    24,800,000
Interest Annually @ 6 % (6/200 * 24,800,000)	$                          744,000	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 5%/2)	0.025	5%
Time Period (n) 20 years	40.00	20
Present Value of Face Value of Bond	$         9,236,279.46771	Face Value/(1+r%)^2n
Present Value of Interest payment	$              18,676,464.64	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                    27,912,744	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                      3,112,744	Issue Price - Face Value of Bonds

Requirement 2:

Bond Characteristics	Amount
Face amount	$ 24,800,000
Interest payment	6%
Market interest rate	6%
Periods to maturity	40.00
Issue price	$ 24,800,000

The bond will issue at par

Working:

Annually		Formula Applied
Face Value of Bond	$                    24,800,000
Interest Annually @ 6 % (6/200 * 24,800,000)	$                          744,000	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 6%/2)	0.030	6%
Time Period (n) 20 years	40.00	20
Present Value of Face Value of Bond	$         7,602,609.65119	Face Value/(1+r%)^2n
Present Value of Interest payment	$              17,197,390.35	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                    24,800,000	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                                      -	Issue Price - Face Value of Bonds

Requirement 3:

Bond Characteristics	Amount
Face amount	$ 24,800,000
Interest payment	6%
Market interest rate	7%
Periods to maturity	40.00
Issue price	$ 22,151,971

The bond will issue at Discount

Working:

Annually		Formula Applied
Face Value of Bond	$                    24,800,000
Interest Annually @ 6 % (6/200 * 24,800,000)	$                          744,000	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 7%/2)	0.035	7%
Time Period (n) 20 years	40.00	20
Present Value of Face Value of Bond	$         6,263,797.21123	Face Value/(1+r%)^2n
Present Value of Interest payment	$              15,888,173.82	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                    22,151,971	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                    (2,648,029)	Issue Price - Face Value of Bonds

End of answer.

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