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AlekseyPX
2 years ago
9

On June 30, 2021, Singleton Computers issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on June 3

0, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on December 31, 2021.
Business
1 answer:
Alekssandra [29.7K]2 years ago
3 0

Answer:

Value of the bonds at issuance:

$131,395,438.89

As this ishigher than face value, there is a premium for 31,395,438.89 dollars

Explanation:

Effective market rate:

To determinatethe price of the bonds we should discount the future coupon payment and maturity at the market rate:

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

Coupon payment:

100,000,000 x 4% = $4,000,000.00

time 15 years x 2 payment per year = 30 payment

market rate: 0.025

4000000 \times \frac{1-(1+0.025)^{-30} }{0.025} = PV\\

Presnet Value of the coupon payment $83,721,170.3710

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

Maturity   100,000,000.00

time   30.00

rate  0.025

\frac{100000000}{(1 + 0.025)^{30} } = PV  

PV   47,674,268.52

Present value of the bonds today:

coupon  $83,721,170.3710

maturity <u> $47,674,268.5181 </u>

Total $131,395,438.8891

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