Question

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

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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