On September 30, 2018, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $340 million. The bonds mature on September 30, 2038 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30.

Required:

Determine the price of the bonds on September 30, 2018. (Enter your answers in whole dollars. Round your final answers to nearest whole dollar amount.)

The price of the bond is $281.6 million

Explanation:

In order to calculate the price of the bond we need to know its par value/future value which is given to us as $340 million, the interest rate which is also given to us as 10%, the payments which are 8% of the face value and number of periods to maturity. However because this is a semi annual bond we will have to adjust the interest rate, payments and number of periods accordingly.

Interest = 10/2 = 5% because semi annual

Payment = 0.08 * 340 million * 0.5 = 13.6 million

Number of periods = 20*2=40

Now we will input the following into a financial calculator in order to find the price of the bond.

FV = 340 million

I=5

N = 40

PMT = 13.6 million

Compute PV=281.6 million