Question

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation... Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

5. Compute the price of $73,100,469 received for the bonds by using Table 1, Table 2, Table 3 and Table 4. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Present value of the face amount $ 24,497,850

Present value of the semi-annual interest payments $

Price received for the bonds $

Answer 1

Given data,

Face Value (Maturity Value)     = $65000000

Maturity Period                                = 10 years

Number of conversions = 20 (10*2)

Coupon rate                       = 12%; Semiannual Coupon Rate = 6% (12/2)

Semiannual Interest = $65000000*6% = $3900000

Effective Interest Rate = 10%; Semiannual Interest Rate = 5% (10/2)

Sale Value = Present Value of Future Expected Cash Flows

= Present Value of Interest + Present Value of Maturity Value

= (Interest*PVAF(5%,20)) + (Maturity Value * PVIF(5%, 20))

= ($3900000 * 12.46221) + ($65000000 * 0.37689)

= $48602620 + $24497850

= $73100470

Present Value of face amount = $24497850

Present Value of Semi-annual Interest Payment = $48602619

Price received for the bonds = $73100469