Question

On December 31, 2021, Interlink Communications issued 6% stated rate bonds with a face amount of $102 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Determine the price of the bonds on December 31, 2021, assuming that the market rate of interest for similar bonds was 7%. (Round your final answers to nearest whole dollar amount.)

Answer 1

Answer: $‭89,342,526

Step-by-step explanation:

Price of the bond will be the present value of the face value plus the present value of the interest payments.

Interest Payments

= 6% * 102,000,000

= $‭6,120,000‬

2051 - 2021 = 30 years

Similar interest = 7%

Present value = 6,120,000 * Present value factor of annuity for 30 years, 7%

= 6,120,000 * 12.4090

= $‭‭75,943,080‬

Present value of bond

= 102,000,000/(1 + 7%)^30

= $13,399,445.95

Price of bond = 13,399,445.95 + 75,943,080

=$‭89,342,526