In: Accounting
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 |
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