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.
Required:
1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
2. If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.
3. If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.