Homework G Saved Help Save & Exit Submit 2 Check my work On September 30, 2018,

Question

Homework G Saved Help Save & Exit Submit 2 Check my work On September 30, 2018, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $200 million. The bonds mature on September 30, 2038 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30. (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factorls) from the tables provided.) Book Required: Determine the price of the bonds on September 30, 2018. rint rences Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.) Table values are based on Cash Flovw Interest Principal Amount Present Value Price of bonds K Prey6 of 7 Next >

Explanation / Answer

CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY Step 1 : Calculation of Annual Coupon Payments Par value of the bond issued is   = $200 Million Annual Coupon % 8.00% Annual Coupon Amount $16.00 Million Semi Annual Coupon Amount $8.00 Million Step 2: Calculate number of years to Maturity Number of years to maturity = 20 years Interest is paid semi annyally so total period = 20 Years * 2 = 40 Periods Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds Market rate of interest or Yield to Maturity or Required Return = 10% Bonds interest is paid semi annualy means so discounting factor = 10 % /2= 5 % PVF = 1 / Discount rate = 1/ 1.05 Result of above will again divide by 1.05 , repeat this lat period Period Interest Amount (In Million) PVF @ 5% PresentValue 1 Interest $8.00                     0.9524 $7.62 2 Interest $8.00                     0.9070 $7.26 3 Interest $8.00                     0.8638 $6.91 4 Interest $8.00                     0.8227 $6.58 5 Interest $8.00                     0.7835 $6.27 6 Interest $8.00                     0.7462 $5.97 7 Interest $8.00                     0.7107 $5.69 8 Interest $8.00                     0.6768 $5.41 9 Interest $8.00                     0.6446 $5.16 10 Interest $8.00                     0.6139 $4.91 11 Interest $8.00                     0.5847 $4.68 12 Interest $8.00                     0.5568 $4.45 13 Interest $8.00                     0.5303 $4.24 14 Interest $8.00                     0.5051 $4.04 15 Interest $8.00                     0.4810 $3.85 16 Interest $8.00                     0.4581 $3.66 17 Interest $8.00                     0.4363 $3.49 18 Interest $8.00                     0.4155 $3.32 19 Interest $8.00                     0.3957 $3.17 20 Interest $8.00                     0.3769 $3.02 21 Interest $8.00                     0.3589 $2.87 22 Interest $8.00                     0.3418 $2.73 23 Interest $8.00                     0.3256 $2.60 24 Interest $8.00                     0.3101 $2.48 25 Interest $8.00                     0.2953 $2.36 26 Interest $8.00                     0.2812 $2.25 27 Interest $8.00                     0.2678 $2.14 28 Interest $8.00                     0.2551 $2.04 29 Interest $8.00                     0.2429 $1.94 30 Interest $8.00                     0.2314 $1.85 31 Interest $8.00                     0.2204 $1.76 32 Interest $8.00                     0.2099 $1.68 33 Interest $8.00                     0.1999 $1.60 34 Interest $8.00                     0.1904 $1.52 35 Interest $8.00                     0.1813 $1.45 36 Interest $8.00                     0.1727 $1.38 37 Interest $8.00                     0.1644 $1.32 38 Interest $8.00                     0.1566 $1.25 39 Interest $8.00                     0.1491 $1.19 40 Interest $8.00                     0.1420 $1.14 40 Bond Principal Value $200.00                     0.1420 $28.41 Total $165.68 Current Bonds Price = $165.68 Answer = $165.68 Million

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