Question

On December 31, 2018, Interlink Communications issued 6% stated rate bonds with a face amount of...

On December 31, 2018, Interlink Communications issued 6% stated rate bonds with a face amount of \$104 million. The bonds mature on December 31, 2048. Interest is payable annually on each December 31, beginning in 2019. (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, 2018, assuming that the market rate of interest for similar bonds was 7%

 Table values are based on: n = 30 i = 7% Cash Flow Amount Present Value Interest Principal Price of bonds

 Table Values are based on N= 30 Years I= 7% Cash Flow Amount Present Value Interest \$6.24 million \$ 13.6622 million Principal \$104 million 77.4324 million Price of Bond \$91.0946 million \$91.095 million [Rounded]

Workings

Face Value = \$104 Million

Interest Amount = \$104 million x 6% = \$6.24 Million

Market Rate         = 7%

Period                   = 30 Years

Price of the Bond = Present Value of the Interest + Present Value of the Face Value

= \$6.24 million x (PVIF 7%,30 Years) + \$104 million x (PVF 7%, 30 Years)

= [ \$6.24 million 12.409041 ] + [ \$104 million x 0.131367 ]

= \$ 13.6622 million + 77.4324 million

= \$91.0946 million

= \$91.095 (Rounded)

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