On January 1, 2018, Frontier World issues $40.7 million of 9% bonds, due in 20 y

Question

On January 1, 2018, Frontier World issues $40.7 million of 9% bonds, due in 20 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, al in one ride. value: Required information 10.00 points Required 1 a. If the market rate is 8%, calculate the issue price. FV of $1 of A of $1. and PVA of $1 answers in dollars not in millions. Round "Market interest rate" to 1 decimal place.) Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Enter your Bond Characteristics Amount S 40,700,000 Face amount Interest payment Market interest rate Periods to maturity Issue price 1-b. The bonds will issue at A Discount Face amount A Premium

Explanation / Answer

(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 40,700,000 interest        1,831,500 Market interest rate 4% periods to maturity 40 issue price 44,727,861 Calculation of bond issue price Where i= 4.00% t= 40 principal * PV of $1 at 4% for 40 yrs = 40,700,000 * 0.20829        =    8,477,403 interest * PV of ordinary annuity at 4%= 1831500 * 19.79277 = 36,250,458 bond issue price 44,727,861 1-b) Premium Bond characterstics Amount 2-a) Principal 40,700,000 interest        1,831,500 Market interest rate 4.5% periods to maturity 40 issue price 40,700,000 Calculation of bond issue price Where i= 4.50% t= 40 principal * PV of $1 at 4.5% for 40 yrs = 40,700,000 * 0.17193        =    6,997,551 interest * PV of ordinary annuity at 4.5%= 1831500 * 18.40158 = 33,702,494 bond issue price 40,700,045 2-b) Face amount Bond characterstics Amount 2-a) Principal 40,700,000 interest        1,831,500 Market interest rate 5% periods to maturity 40 issue price 37,208,308 Calculation of bond issue price Where i= 5.00% t= 40 principal * PV of $1 at 4% for 40 yrs = 40,700,000 * 0.14205        =    5,781,435 interest * PV of ordinary annuity at 4%= 1831500 * 17.15909 = 31,426,873 bond issue price 37,208,308 2-b) Discount

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