Question

# On January 1, 2021, Frontier World issues \$39.8 million of 8% bonds, due in 15 years,...

On January 1, 2021, Frontier World issues \$39.8 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.

2-a. 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. Round your final answers to the nearest whole dollar.)

Interest Payment = 15,92,000

Calculate issue price = ?

Issue price of Bond = \$39800000.

Explanation:

Face value = \$39800000

Market interest rate = 8% / 2 = 4%

Semiannual period = 15 years x 2 = 30

Issue price of bonds = Interest Amount x Present value Annuity factor (r,n) + Face value x Present value interest factor (r,n)

= \$1592000 x Present value Annuity factor (4% , 30 ) + \$39800000 x Present value interest factor (4% , 30)

= \$1592000 x 17.2920332+ \$39800000 x 0.3083187

= \$27528916 + \$12271084

= \$39800000.

Note:

When interest rate and market rate are the same then issue price will be equal to Face value i.e. \$39.8 million.

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