Question
In: Accounting
On June 30, 2013, Singleton Computers issued 6% stated rate bonds with a face amount of...
On June 30, 2013, Singleton Computers issued 6% stated rate bonds with a face amount of $200 million. the bonds matured on June 30, 2033 (15 years). The Market rate of interest for similar bond issues was 5% (2.5% semi-annual rate). Interest paid semiannually (3%) on June 30 and December 31, beginning on December 31, 2018.
Required:
1. Determine the price of the the bonds on June 20, 2018.
2.Calculate the interest expense Singleton reports in 2018 for these bonds.
My question is, that I cannot figure out how to calculate the Present Value of Ordinary Annuity of $1.
I understand I need to use n=30 and I=2.5% But I don't understand how to apply them to a formula to get the answer of Present Value of Ordinary Annuity of $1 so that I can continue.
Solutions
Expert Solution
| 1 | Present value of Bond Principle = | $200,000,000 x (PVF – OAn, i) = $$200,000,000 x (PVF – OA30, 2.5%) = $$200,000,000 x 0.47674 = $95,348,000 | |||||||
| Present value of Bond Interest = | $6,000,000 x (PVFn, i) = $$6,000,000 x (PVF30, 2.5%) = $$6,000,000 x 20.93029 = $125,581,740 | ||||||||
| The selling price of the bonds = | $220,929,740 | ||||||||
| 2 | Period | Cash Interest paid | Interest expenses | Prem Amortization | Carrying value | ||||
| 6/30/2016 | 220,929,740 | ||||||||
| 12/31/2016 | 6,000,000 | 5,523,244 | 476,757 | 220,452,984 | |||||
| Explanation | |||||||||
| To determine the price of the bonds, we calculate the present value of the 30period annuity (30 semiannual interest payments of $6 million) | |||||||||
| and the lumpsum payment of $200 million paid at maturity using the semiannual market rate of interest of 2.5% | |||||||||
| (use financial calculator) | |||||||||
| http://financeformulas.net/Present_Value_Factor.html | |||||||||
| http://financeformulas.net/Present_Value_of_Annuity.html | |||||||||
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