On September 30, 2018, the San Filipo Corporation issued 8% stated rate bonds wi

Question

On September 30, 2018, the San Filipo Corporation issued 8% stated rate bonds with a face amount of $160 million. The bonds mature on September 30, 2038 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30. (FV of $1. PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Required Determine the price of the bonds on September 30, 2018. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.) Price of

Explanation / Answer

Price of bond is the present value of cash flows from bond. Present value of coupon interest $       10,98,18,153 Present value of Par Value $          2,27,27,309 Present value of cash flows from bond $       13,25,45,462 Thus, Current Price of bond $ 13,25,45,462 Working: # 1 Semi annual coupon interest = Par Value x Semi annual coupon rate = $       16,00,00,000 x 4% = $             64,00,000 # 2 Present value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.05)^-40)/0.05 i 5% =                   17.15909 n 40 # 3 Present value of 1 = (1+i)^-n = (1+0.05)^-40 =                     0.14205 # 4 Present value of coupon interest $             64,00,000 x 17.15909 = $       10,98,18,153 Present Value of Par Value $       16,00,00,000 x     0.14205 = $          2,27,27,309

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