On January 1, 2018, Frontier World issues $40.6 million of 8% bonds, due in 15 y

Question

On January 1, 2018, Frontier World issues $40.6 million of 8% bonds, due in 15 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, all in one ride.   

1-a. If the market rate is 7%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Enter your answers in dollars not in millions. Round "Market interest rate" to 1 decimal place.)

Bond Characteristics:

Face Amount?

Interest payment?

Market interest rate?

Periods to maturity?

Issue price?

1-b. The bonds will issue at

1-c. If the market rate is 8%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Enter your answers in dollars not in millions. Round "Market interest rate" to 1 decimal place.)

Bond Characteristics:

Face amount?

Interest payment?

Market interest rate?

Periods to maturity?

Issue price?

1-d. The bonds will issue at

1-e. If the market rate is 9%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Enter your answers in dollars not in millions. Round "Market interest rate" to 1 decimal place.)

Bond Characteristics:

Face amount?

Interest payment?

Market Interest rate?

Periods to maturity?

Issue price?

1-f. The bonds will issue at

Explanation / Answer

1a) Face Amount $40,600,000 Interest Payment = 8%/2 x $40,600,000 $1,624,000 Market Interest rate = 7%/2 3.50% Periods to Maturity = 15 x 2 30 Issue Price PV of Interest payment = PVA(3.5%,30) x $1624000 = $1624000 x 18.392 $29,868,608 PV of Face Amount = PV(3.5%,30) x $40,600,000 =.3563 x $40,600,000 $14,465,780 Issue Price $44,334,388 1b) The bonds issued at premium. 2a) Face Amount $40,600,000 Interest Payment = 8%/2 x $40,600,000 $1,624,000 Market Interest rate = 8%/2 4.00% Periods to Maturity = 15 x 2 30 Issue Price PV of Interest payment = PVA(4%,30) x $1,624,000 = $1,624,000 x 17.292 $28,082,208 PV of Face Amount = PV(4%,30) x $40,600,000 =.3083 x $40,600,000 $12,516,980 Issue Price $40,599,188 approx 2b) The bonds issued at face amount 3a Face Amount $40,600,000 Interest Payment = 8%/2 x $40,600,000 $1,624,000 Market Interest rate = 9%/2 4.50% Periods to Maturity = 15 x 2 30 Issue Price PV of Interest payment = PVA(4.5%,30) x $1624000 = $1624000 x 16.289 $26,453,336 PV of Face Amount = PV(4.5%,30) x $40,600,000 =.2670 x $40,600,000 $10,840,200 Issue Price $37,293,536 3b) The bonds issued at discount.

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