On December 31, 2018, Interlink Communications issued 6% stated rate bonds with

ID: 2396939 • Letter: O

Question

On December 31, 2018, Interlink Communications issued 6% stated rate bonds with a face amount of $104 million. The bonds mature on December 31, 2048. Interest is payable annually on each December 31, beginning in 2019. (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, 2018, assuming that the market rate of interest for similar bonds was 7%

Table values are based on: n = 30 i = 7% Cash Flow Amount Present Value Interest Principal Price of bonds

Explanation / Answer

Table Values are based on

30 Years

Cash Flow

Amount

Present Value

Interest

$6.24 million

$ 13.6622 million

Principal

$104 million

77.4324 million

Price of Bond

$91.0946 million

$91.095 million

[Rounded]

Workings

Face Value = $104 Million

Interest Amount = $104 million x 6% = $6.24 Million

Market Rate = 7%

Period = 30 Years

Price of the Bond = Present Value of the Interest + Present Value of the Face Value

= $6.24 million x (PVIF 7%,30 Years) + $104 million x (PVF 7%, 30 Years)

= [ $6.24 million 12.409041 ] + [ $104 million x 0.131367 ]

= $ 13.6622 million + 77.4324 million

= $91.0946 million

= $91.095 (Rounded)