Question

Required Information [The following information applies to the questions displayed below) On January 1, 2021, Frontier World Issues $40.3 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 nde. Required: 1-a. If the market rate is 7%, calculate the issue price. V of $1. PV of $1. FVA of $3 and PVA of $u (Use appropriate factors 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 40,300.000 Periods to maturity Market interest rate Issue price 1-5. The bonds will issue at A Discount A Premium Face amount

Answer 1

Issue price = {40300000 * PVAF(3.5%,30th period) } + {1612000 * PVAF(3.5%,30 periods }

= (40300000 * 0.3563) + (1612000 * 18.3920)

= 44006794

Since bond price is higher than face value, it will be issued at premium.

Note: PVAF is taken up to 4 decimals. Answer may vary slightly if more or less decimals are taken.