Exercise 6-17 Price of a bond [LO6-9] On September 30, 2018, the San Filipo Corp

Question

Exercise 6-17 Price of a bond [LO6-9] On September 30, 2018, the San Filipo Corporation issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on September 30, 2038 20 years). The market rate of interest for similar bonds was 10%, nterestis 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 factor(s) from the tables provided.) 10 oints Required: 0118:52Determine the price of the bonds on September 30, 2018. (Enter your answers in whole dollars. Round your final answers to nearest References Table values are based on: 20 10% Amount Present Value Cash Flow Interest Principal Price of bonds 42,600,000

Explanation / Answer

Price of bond is the present value of cash flow received discounted at market rate of return.

n = 20 years and i = 10% ; Interest from bond every half year = $300 million x 4% = 12,000,000

The price of bond = 205,909,200 + 44,593,088 = $250,502,288

So the price of bond = $250.502 million

Year Cash Flow Present value factor @5% (Semi annually) Present Value 1-20 12,000,000 17.1591 205,909,200 20 300,000,000 0.1486 44,593,088

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