Ch09a - Chapter 09 - Long-Term Liabilities Exercise 9-3 On...

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Chapter 09 - Long-Term Liabilities 9-1 Exercise 9-3 On January 1, 2012, Frontier World issues $40 million of 8% bonds, due in 15 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. Requirement 1: If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. Premium. The issue price is $43,678,409 Calculator Input Bond Characteristics Key Amount 1. Face amount FV $40,000,000 2. Interest payment PMT $1,600,000 = $40,000,000 x 8% x ½ year 3. Market interest rate I 3.5% = 7% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV $43,678,409
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Chapter 09 - Long-Term Liabilities 9-2 Requirement 2: If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. Face amount. The issue price is $40,000,000. Calculator Input Bond Characteristics Key Amount 1. Face amount FV $40,000,000 2. Interest payment PMT $1,600,000 = $40,000,000 x 8% x ½ year 3. Market interest rate I 4% = 8% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV $40,000,000 Requirement 3: If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. Discount. The issue price is $36,742,222 Calculator Input Bond Characteristics Key Amount 1. Face amount FV $40,000,000 2. Interest payment PMT $1,600,000 = $40,000,000 x 8% x ½ year 3. Market interest rate I 4.5% = 9% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV $36,742,222
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Chapter 09 - Long-Term Liabilities 9-3 Exercise 9-9 On January 1, 2012, White Water issues $500,000 of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Requirement 1: Assuming the market interest rate on the issue date is 7%, the bonds will issue at $446,612. Complete the first three rows of an amortization table. (1)
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This note was uploaded on 02/23/2012 for the course MGMT 200 taught by Professor Greigg during the Summer '08 term at Purdue University-West Lafayette.

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Ch09a - Chapter 09 - Long-Term Liabilities Exercise 9-3 On...

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