Question

On September 30, 2018, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $340 million. The bonds mature on September 30, 2038 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30.

Required:
Determine the price of the bonds on September 30, 2018. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.)

Answer 1

The price of the bond is $281.6 million

Step-by-step explanation:

In order to calculate the price of the bond we need to know its par value/future value which is given to us as $340 million, the interest rate which is also given to us as 10%, the payments which are 8% of the face value and number of periods to maturity. However because this is a semi annual bond we will have to adjust the interest rate, payments and number of periods accordingly.

Interest = 10/2= 5% because semi annual

Payment = 0.08* 340 million *0.5= 13 .6 million

Number of periods = 20*2=40

Now we will input the following into a financial calculator in order to find the price of the bond.

FV= 340 million

I=5

N= 40

PMT= 13.6 million

Compute PV=281.6 million