Question

Required information The following information applies to the questions displayed below. On January 1, 2021, Frontier World issues $39.7 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. Required: 1-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.) Bond Characteristics Face amount $ s Interest payment Periods to maturity Market interest rate Issue price Amount 39,700,000 1,786,500 40 4.0% 43,628,897 $ 1-b. The bonds will issue at A Discount A Premium Face amount

Answer 1

Face amount =$39,700,000

Interest payment =39,700,000*9%*1/2 =$1786,500

Semi annual periods to maturity = 20*2 =40

Senior annual market interest rate =8%/2 =4%

Issue price is equal to the present value of all interest payments and the principal amount

= 1786500*PVAF(4%, 40 periods) + 39,700,000*PVF(4%, 40 periods)

=1786500*19.7928 +39700,000*0.2083

=$43,629,347.2 approx.

Since the price is higher than the par value, will be issued at premium

Note: use present value factors as given in the question, you will get the exact answer