Question

On January 1, Year 1, a company issues $39.1 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) (Use appropriate factor(s) from the tables provided.
Bond Characteristics AmountFace amount Interest payment Market interest rate Periods to maturity Issue price
A. If the market rate is 9%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1).
Bond Characteristics AmountFace amount Interest payment Market interest rate Periods to maturity Issue price
If the market rate is 10%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1).
Bond Characteristics AmountFace amount Interest payment Market interest rate Periods to maturity Issue price

Answer 1

$42,969,487

$ 39,100,000

$ 35,745,399

Step-by-step explanation:

The price of the bond using the pv formula in excel is given thus:

=-pv(rate,nper,pmt,fv)

rate is the market rate divided by 2 since interest is payable twice a year

nper is 20year multiplied by 2 which gives 40

pmt is the semiannual coupon=$39,100,000*9%*6/12=$1,759,500.00

fv is the face value of $39,100,000

market rate of 8%

=-pv(8%/2,40,1759500,39100000)=$42,969,487

market rate of 9%

=-pv(9%/2,40,1759500,39100000)=$ 39,100,000

market rate of 10%

=-pv(10%/2,40,1759500,39100000)=$35,745,399