Original Question: (already solved) On July 1, 2014, Bryant Industries Inc. issu

Question

Original Question: (already solved)

On July 1, 2014, Bryant Industries Inc. issued $100,000,000 of 20-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $91,420,905. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Just need this part completed:

Compute the price of $91,420,905 received for the bonds by using Table 1 and Table 2. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Explanation / Answer

Solution:

Calculation of Present value (price) of the bonds:

Interest = 100,000,000 * 9% * (1/2) = 4,500,000

Present value of an ordinary annuity of $1: (n=40, i=5%) = 17.15909 (Table 1)

Present value of $1: (n=40, i=5%) = 0.14205 (Table 2)

Cash
flows (a) Discount
factor (5%) (b) Discounted
Cash flows (a*b) Interest        4,500,000 17.15909             77,215,905 Principal    100,000,000 0.14205             14,205,000 Present value (price) of the bonds             91,420,905

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