Question:
On September 30, 2013, the San Fillipo Corporation issued 8% stated rate bonds with a face amount
of$300 million. The bonds mature on September 30, 2033 (20 years). The market rate of interest for
similar bondswas 10%. Interest is paid semiannually on March 31 and September 30.
Required:
Determine the price of the bonds on September 30, 2013.
Answer:
To determine the price of the bonds, we calculate the present value of the 40-period annuity (40
semiannual interest payments of $12 million) and the lump-sum payment of $300 million paid at maturity
using the semiannual market rate of interest of 5%. In equation form
PV = $12,000,0001 (17.15909) + 300,000,000 (.14205)
PV = $205,909,080 + 42,615,000 = $248,524,080 = price of the bonds
1
$300,000,000 x 4 % = $12,000,000
Present value of an ordinary annuity of $1: n = 40, i = 5% (from Table 4)
Present value of $1: n = 40, i = 5% (from Table 2)
On September 30, 2013, the San Fillipo Corporation issued 8% stated rate bonds with a face amount
of$300 million. The bonds mature on September 30, 2033 (20 years). The market rate of interest for
similar bondswas 10%. Interest is paid semiannually on March 31 and September 30.
Required:
Determine the price of the bonds on September 30, 2013.
Answer:
To determine the price of the bonds, we calculate the present value of the 40-period annuity (40
semiannual interest payments of $12 million) and the lump-sum payment of $300 million paid at maturity
using the semiannual market rate of interest of 5%. In equation form
PV = $12,000,0001 (17.15909) + 300,000,000 (.14205)
PV = $205,909,080 + 42,615,000 = $248,524,080 = price of the bonds
1
$300,000,000 x 4 % = $12,000,000
Present value of an ordinary annuity of $1: n = 40, i = 5% (from Table 4)
Present value of $1: n = 40, i = 5% (from Table 2)
