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30 and December
31 each year. The proceeds will be used to build a new ride that combines a roller coaster, a water ride, a dark tunnel, and the great smell of
outdoor barbeque, all in one ride.
If the market rate is 6%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price
If the market rate is 10%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
http://lectures.mhhe.com/connect/0078110823/Tables/appendixb.jpg
http://lectures.mhhe.com/connect/0078110823/Tables/appendixd.jpg
On January 1, 2012, Frontier World issues $42 million of 8% bonds, due in 2 years, with interest payable semiannually on June 30 and December
31 each year. The proceeds will be used to build a new ride that combines a roller coaster, a water ride, a dark tunnel, and the great smell of
outdoor barbeque, all in one ride.
If the market rate is 6%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price
If the market rate is 10%, will the bonds issue at face amount, a discount, or a premium? Calculate the
issue price.
http://lectures.mhhe.com/connect/0078110823/Tables/appendixb.jpg
http://lectures.mhhe.com/connect/0078110823/Tables/appendixd.jpg
Solution
On January 1, 2012, Frontier World issues $42 million of 8% bonds, due in 2 years, with interest payable semiannually on June 30 and December
31 each year. The proceeds will be used to build a new ride that combines a roller coaster, a water ride, a dark tunnel, and the great smell of
outdoor barbeque, all in one ride.
If the market rate is 6%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
Issue Price = 1.68*PVIFA(3%,4) + 42 PVIF(3%,4)
Issue Price = 1.68*3.71710 + 42*0.88849
Issue Price = $ 43,561,308
If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price
Issue Price = $ 42,000,000
If the market rate is 10%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
Issue Price = 1.68*PVIFA(5%,4) + 42 PVIF(5%,4)
Issue Price = 1.68*3.54595 + 42*0.82270
Issue Price = $ 40,510,596