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. Required: 1-a. If the market rate is 7%, calculate the issue price. (FV of $1. PV of $1. EVA 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 Amount 39,200,000 Interest payment Periods to maturity Martinerest rate 1-b. The bonds will issue at 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

Annual Market Interest Rate = 7.00%
Semiannual Market Interest Rate = 3.50%

Bond Characteristics Face amount Interest payment Periods to maturity Market interest rate Issue price Amount $ 39,200,000 $ 1,568,000 30 3.50% $ 42,805,616

Issue Price = $1,568,000 * PVA of $1 (3.50%, 30) + $39,200,000 * PV of $1 (3.50%, 30)
Issue Price = $1,568,000 * 18.3920 + $39,200,000 * 0.3563
Issue Price = $42,805,616

The bonds will issue at premium.