Question

On December 31, 2021, Interlink Communications issued 5% stated rate bonds with a face amount of $118 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. (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, 2021, assuming that the market rate of interest for similar bonds was 6%. (Round your final answers to nearest whole dollar amount.)

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

Answer 1

Correct Answer:

table values are based on:
n =	30	Years
I =	6%
Cash flow	Amount	Present value
Interest	$                59,00,000	$        8,12,12,503.79
Principal	$          11,80,00,000	$              2,05,44,995
Price of Bonds		$           10,17,57,499

Working:

Annually		Formula Applied
Face Value of Bond	$   11,80,00,000
Interest Annually @ 5%	$         59,00,000	(Face Value of Bonds * Coupon rate )
Annual Effective interest Rate r = ( 6%)	0.0600	6%
Time Period (n) 30 years	30.00	30
Present Value of Face Value of Bond	$      2,05,44,995	Face Value/(1+r%)^2n
Present Value of Interest payment	$      8,12,12,504	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$   10,17,57,499	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$   (1,62,42,501)	Issue Price - Face Value of Bonds

End of Answer.

Thanks