On June 30,2013, Gunderson Electronics issue 8% stated rate bonds with a face am

Question

On June 30,2013, Gunderson Electronics issue 8% stated rate bonds with a face amount of $300 million. The bonds mature on June 30,2033(20years). The market rate of interest for similar bond issue was 10% (5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31,beginning on December 31,2013. Required: a. Determine the price of the bonds on June 30,2013. b. Calculate the interest expense Gunderdon reports in 2013 for these bonds. On June 30,2013, Gunderson Electronics issue 8% stated rate bonds with a face amount of $300 million. The bonds mature on June 30,2033(20years). The market rate of interest for similar bond issue was 10% (5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31,beginning on December 31,2013. Required: a. Determine the price of the bonds on June 30,2013. b. Calculate the interest expense Gunderdon reports in 2013 for these bonds. Required: a. Determine the price of the bonds on June 30,2013. b. Calculate the interest expense Gunderdon reports in 2013 for these bonds.

Explanation / Answer

a Present value of the interest and maturity value receivable from the   bond over next 40 semi annual periods , discounted by expected return 5% per half year is $ 248.523 M . So current price of Bond is $ 248.523 M Period Interest (M) discount @5% PV (M)                        1 12 0.9524     11.429                        2 12 0.9070     10.884                        3 12 0.8638     10.366                        4 12 0.8227        9.872                        5 12 0.7835        9.402                        6 12 0.7462        8.955                        7 12 0.7107        8.528                        8 12 0.6768        8.122                        9 12 0.6446        7.735                      10 12 0.6139        7.367                      11 12 0.5847        7.016                      12 12 0.5568        6.682                      13 12 0.5303        6.364                      14 12 0.5051        6.061                      15 12 0.4810        5.772                      16 12 0.4581        5.497                      17 12 0.4363        5.236                      18 12 0.4155        4.986                      19 12 0.3957        4.749                      20 12 0.3769        4.523                      21 12 0.3589        4.307                      22 12 0.3418        4.102                      23 12 0.3256        3.907                      24 12 0.3101        3.721                      25 12 0.2953        3.544                      26 12 0.2812        3.375                      27 12 0.2678        3.214                      28 12 0.2551        3.061                      29 12 0.2429        2.915                      30 12 0.2314        2.777                      31 12 0.2204        2.644                      32 12 0.2099        2.518                      33 12 0.1999        2.398                      34 12 0.1904        2.284                      35 12 0.1813        2.175                      36 12 0.1727        2.072                      37 12 0.1644        1.973                      38 12 0.1566        1.879                      39 12 0.1491        1.790                      40 312 0.1420     44.318 Total 248.523 b Interest expense for 2013 will be @4% on $300 million= $ 12 million payable on Dec 31 2013

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