Help Save&Exit; Submit Check my work On December 31, 2018, l teink Communication

Question

Help Save&Exit; Submit Check my work On December 31, 2018, l teink Communications issued 6% stated ate bonds with a face am unt of so on The bonds mature on December 31, 2048. Interest is payable anualy on each December 31, beginning n 20 ats. PLotSI·EVAatS1 gA0LSL EVADatst and PVAOatStJUse appropriate factors) from the tablet powdedi Determine the price of the bonds on December 31, 2018, assuming that the market rate of interest for similar bonds was 7%(Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount) Price of bonds

Explanation / Answer

Price of bond = $89 million

Explanation;

Price of bond = Present value of principal + Present value of interest payments

So let’s calculate present value of principal and present value of interest payments one by one;

Present value of principal will be calculated as follow;

Principal amount = $102 million

Present value factor for a single payment (7%, 30 periods) = 0.1314

Thus, Present value of principal will be ($102 million * 0.1314) = 13.4028 million

Now’ let’s calculate Present value of interest payments;

Interest payment for per period ($102 million * 6 / 100) = 6.12 million

Present value factor for an ordinary annuity (7%, 30 periods) = 12.4090

Thus, Present value of interest payments will be (6.12 million * 12.4090) = $75.94308

Price of bond (13.4028 million + $75.94308) = $89.35 million (Approx.) or $89 million

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