Question

In: Accounting

On December 31, 2021, Interlink Communications issued 5% stated rate bonds with a face amount of...

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

Solutions

Expert Solution

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


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