Question

On january 1, 2017, A company issued 12% stated rate bonds with a face amount of $200 million. The bonds mature on january 1, 2027 and market rate was 14%. 

Please answer the following:
1.n=
2.i=
3.Total present value of interest payment=
4.Total present value of principal=
5.Total price of bonds=

Answer 1

Correct Answer:

1	N =	10
2	I =	14%
3	Total present value of interest payments =	$        125,186,776
4	Total present value of principal	$          53,948,762
5	Total price of bonds	$        179,135,537

Working:

		Annual Rate	Applicable rate		Face Value	$   200,000,000
	Market Rate	14.00%	14.00%		Term (in years)	10
	Coupon Rate	12.00%	12.00%		Total no. of interest payments	10
Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$             200,000,000	at	14.00%	Interest rate for	10	term payments
PV of $1	0.26974
PV of	$             200,000,000	=	$         200,000,000	x	0.26974	=	$           53,948,761.90	A
Interest payable per term	at	12.0%	on	$                   200,000,000
Interest payable per term	$               24,000,000
PVAF of 1$	for	14.0%	Interest rate for	10	term payments
PVAF of 1$	$                     5.21612
PV of Interest payments	=	$24,000,000.00	x	5.21612	=	$         125,186,775.51	B
			a	Bond Value (A+B)	$           179,135,537.4

End of answer.

Please give a thumbs up, it will be highly appreciated.

Thanks.