Question

On December 31, 2021, Interlink Communications issued 5% stated rate bonds with a face amount of $106 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. (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, 2021, assuming that the market rate of interest for similar bonds was 6%. (Round your final answers to nearest whole dollar amount.)

Answer is complete but not entirely correct.

Table values are based on:
n = 30selected answer correct
i = 6%selected answer correct
Cash Flow Amount Present Value
Interest $111,300,000selected answer incorrect $74,454,240selected answer incorrect
Principal $100,000,000selected answer incorrect 13,137,000selected answer incorrect
Price of bonds $87,591,240selected answer incorrect

Answer 1

Answer:

The price collected from the bonds at issuance will be of 91,409,278.98

Explanation:

The price of the bond at issuance will be the present value of the coupon payment and maturity discounted at effective rate.

Present value of the coupon paymnet (interest)

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C 5,300,000.000

time 30

rate 0.06

$5300000 \times \frac{1-(1+0.06)^{-30} }{0.06} = PV$

PV $72,953,605.1029

Present value of the maturity (principal)

$\frac{Maturity}{(1 + rate)^{time} } = PV$  

Maturity   106,000,000.00

time   30.00

rate  0.06

$\frac{106000000}{(1 + 0.06)^{30} } = PV$  

PV   18,455,673.88

PV c $72,953,605.1029

PV m  $18,455,673.8765

Total $91,409,278.9794