Question

Required information The following information applies to the questions displayed below. On January 1, 2021, Frontier World Issues $39.2 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 39,200,000 $ Bond Characteristics Face amount Interest payment Periods to maturity Market Interest rate Issue price 2-b. The bonds will issue at O A Discount A Premium Face amount

Answer 1

Face Value of Bonds = $39,200,000

Annual Stated Interest Rate = 8.00%
Semiannual Stated Interest Rate = 4.00%
Semiannual Stated Interest = 4.00% * $39,200,000
Semiannual Stated Interest = $1,568,000

Time to Maturity = 15 years
Semiannual Period = 30

Answer 2.

Annual Market Interest Rate = 8.00%
Semiannual Market Interest Rate = 4.00%

Bond Characteristics Face amount Interest payment Periods to maturity Market interest rate Issue price Amount $ 39,200,000 $ 1,568,000 $ 30 4.00% $ 39,200,000

Issue Price = $1,568,000 * PVA of $1 (4.00%, 30) + $39,200,000 * PV of $1 (4.00%, 30)
Issue Price = $1,568,000 * 17.2920 + $39,200,000 * 0.3083
Issue Price = $39,200,000

The bonds will issue at face amount.

Answer 3.

Annual Market Interest Rate = 9.00%
Semiannual Market Interest Rate = 4.50%

Bond Characteristics Face amount Interest payment Periods to maturity Market interest rate Issue price Amount $ 39,200,000 $ 1,568,000 $ 30 4.50% $ 36,007,395

Issue Price = $1,568,000 * PVA of $1 (4.50%, 30) + $39,200,000 * PV of $1 (4.50%, 30)
Issue Price = $1,568,000 * 16.2889 + $39,200,000 * 0.2670
Issue Price = $36,007,395

The bonds will issue at discount.