Question

On January 1, 2021, Water World issues $25.9 million of 6% bonds, due in 20 years,...

On January 1, 2021, Water World issues $25.9 million of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Water World intends to use the funds to build the world’s largest water avalanche and the “tornado”— a giant outdoor vortex in which riders spin in progressively smaller and faster circles until they drop through a small tunnel at the bottom.

1-a. If the market rate is 5%, 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. Round "Market interest rate" to 1 decimal place. Enter your answers in dollars not in millions. Round your final answers to the nearest whole dollar.)


1-b. The bonds will issue at

A) A Discount

B) A Premium

C) Face Amount

Homework Answers

Answer #1
1-a $29,150,796
Bond Issue Price = Present value of Bond Face Value and Interest
n = 20 years i.e. 40 period
r = 5% annualy i.e 2.5% semi annualy
Face Value
$25,900,000 x PV of $1 2.5%, 40
$25,900,000 x 0.37243 $9,645,937
Interest
$777,000 x PVA of $1 2.5%, 40 $19,504,860
$777,00 x 25.10278
$29,150,796
1-b B) A Premium
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