Question

Skysong Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,128,500 of 12% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 8%.



As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Selling price of the bonds

$

$54,000 receivable at the end of each period for 8 periods compounded at 11%

Answer 1

1

Selling price of the bonds

4210466

Workings:
Semi-annual interest	187710	=3128500*12%*6/12
Semi-annual interest rate	4%	=8%/2
Number of periods	30	=15*2
	Amount	PV factor 4%	Present value
Semi-annual interest	187710	17.29203	3245887
Principal	3128500	0.30832	964579
Total			4210466
	PV factor 4%
Semi-annual interest	17.29203	=(1-(1.04)^-30)/0.04
Principal	0.30832	=1/1.04^30

Question -2

Amount receivable	54000
X PV factor	5.14612	=(1-(1.11)^-8)/0.11
Present value	277890