On January 1, 2015, Frontier World issues $41 million of 9% bonds, due in 20 yea
ID: 2739618 • Letter: O
Question
On January 1, 2015, Frontier World issues $41 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, all in one ride.
If the market rate is 8%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1)
f the market rate is 9%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1
If the market rate is 10%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1)
On January 1, 2015, Frontier World issues $41 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, all in one ride.
Explanation / Answer
1)
Coupon payment = $41 * 9%/2 = $1.845.
Rate = 8%/2 = 4%,
FV = $41.
Nper = 20*2 = 40.
Compute the issue price or present value of the bond.
PV = PV(Rate,Nper,Pmt,Fv) = PV(4%,40,1.845,41) = $45.06.
Therefore, the issue price is $45.06 million.
2)
Coupon payment = $41 * 9%/2 = $1.845.
Rate = 9%/2 = 4.5%,
FV = $41.
Nper = 20*2 = 40.
Compute the issue price or present value of the bond.
PV = PV(Rate,Nper,Pmt,Fv) = PV(4.5%,40,1.845,41) = $41.00.
Therefore, the issue price is $41.00 million.
3)
Coupon payment = $41 * 9%/2 = $1.845.
Rate = 10%/2 = 5%,
FV = $41.
Nper = 20*2 = 40.
Compute the issue price or present value of the bond.
PV = PV(Rate,Nper,Pmt,Fv) = PV(5%,40,1.845,41) = $37.48.
Therefore, the issue price is $37.48 million.
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