Question

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

Answer 1

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)