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.

Expert Solution

1	Present value of Bond Principle =	$200,000,000 x (PVF – OA_{n, i}) = $$200,000,000 x (PVF – OA_{30, 2.5%}) = $$200,000,000 x 0.47674 = $95,348,000

	Present value of Bond Interest =	$6,000,000 x (PVF_{n, i}) = $$6,000,000 x (PVF_{30, 2.5%}) = $$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

ekkarill92 answered 1 year ago

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