Question

On September 30, 2021, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $280 million. The bonds mature on September 30, 2041 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30. ((EV of $1. PV of $1. FVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 

Required: 

Determine the price of the bonds on September 30, 2021. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.) 

Answer 1

Answer:

Calculate present value of face value of bond
Particulars	Amount($)
Face value of bonds	28,00,00,000
Pv factor at 5% for 40 periods	0.14205
Present value of face value of bonds	3,97,74,000
Present value of $1 annuity table at 40 periods at 5% is 0.14205
Calculate present value of interest payment ( ordinary annuity table)
Interest payment (2800000000*8%/2)	1,12,00,000
Pv factor at 5% for 40 periods	17.15909
Present value of interest payment	19,21,81,808
Price of bond	23,19,55,808

Answer 2

	table values are based on
	n=	40
	i=	5%
	cash flow	Amount	PV
	interest	11,200,000	192181808
	principal	280,000,000	39774000
	price of bonds		231955808

(note there will be slight difference in issue price calculation ,kindly use the factors as given
inn your question to get exact answer)
	Bond characterstics				Amount
1-a)	Principal				280,000,000
	interest				11,200,000
	Market interest rate				5%
	periods to maturity				40
	issue price				231,955,808
	Calculation of bond issue price
	Where
	i=	5.00%
	t=	40
	principal		*	PV of $1 at 5% for 40 yrs =
	280,000,000		*	0.14205		=	39774000
	interest		*	PV of ordinary annuity at 5%=
	11200000		*	17.15909		=	192181808
	bond issue price						231955808