Question

Recently, the vice president of ops has requested construction of a new plant to meet the increasing demand for the company’s bicycles. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 at 11 percent corporate bonds on April 1, 2019, due on April 1, 2033. Interest is payable annually on April 1 each year. At the time the bonds were issued, the market interest rate for similar financial securities is 10 percent. Determine the selling price of the bonds.

Answer 1

Face Value	$ 30,00,000.00
Interest Annual Payment	$3,30,000.00
PVAF @ 10%,14 Yrs	7.37
PV Of Interest Payment 330000*7.37	$24,32,100.00
PV Of Maturity amount at year 14 3000000*.2634	$    7,89,993.76
Selling price of the bonds	$32,22,093.76

*Tip : The Bond are at premium since its giving return more than the market rate.