Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Ro

Question

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation... Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

5. Compute the price of $73,100,469 received for the bonds by using Table 1, Table 2, Table 3 and Table 4. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Present value of the face amount $ 24,497,850

Present value of the semi-annual interest payments $

Price received for the bonds $

Explanation / Answer

Given data,

Face Value (Maturity Value)     = $65000000

Maturity Period                                = 10 years

Number of conversions = 20 (10*2)

Coupon rate                       = 12%; Semiannual Coupon Rate = 6% (12/2)

Semiannual Interest = $65000000*6% = $3900000

Effective Interest Rate = 10%; Semiannual Interest Rate = 5% (10/2)

Sale Value = Present Value of Future Expected Cash Flows

= Present Value of Interest + Present Value of Maturity Value

= (Interest*PVAF(5%,20)) + (Maturity Value * PVIF(5%, 20))

= ($3900000 * 12.46221) + ($65000000 * 0.37689)

= $48602620 + $24497850

= $73100470

Present Value of face amount = $24497850

Present Value of Semi-annual Interest Payment = $48602619

Price received for the bonds = $73100469

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