Businesses need money to expand and grow and typically, they have three options: sell stock, receive a loan from a bank, or sell bonds. Bonds are similar to an IOU; the investor loans money to the Business and the Business promises to pay the money back plus interests. The amount of money the Business borrows is considered the principal. While the investor is waiting for the bond to be paid back, which sometimes can take years, they want something in return. Investors require the Business to pay them interest annually or semi- annually until the principal is paid back. These payments are called coupon interest payments. Interest is the cost of borrowing money. Bonds may be sold at a discount, face or premium. One way to understand the concept of Discount and Premium is applying your understanding of market strategy. What makes merchants sell products at a discount? Generally products are sold at a discount becuase it is less attractive (in style, utility, or appeal) then its counter parts, right? pivuuuua au a uisuvuill! Velleially proucis die sold at a discount becuase it is less attractive (in style, utility, or appeal) then its counter parts, right? Similarly, when bonds are issued, it has the stated principal amount and STATED interest rate on paper (in the contractual agreement). When it is sold in the market, the STATED RATE has to compete with the MARKET RATE. If the STATED rate is less (lower) than what the MARKET is offering, the bond will have to be sold at a discount. If the STATED rate is better (higher than the MARKET rate, then it is sold at a premium. On January 1, 2018, Water Wonderland issues $20 million of 7% bonds, due in eight years, with interest payable semiannually on June 30 and December 31 each year. Use Table 2 and Table 4 in the textbook If the market rate is 6%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. (Round "PV Factor" to 5 decimal places. Round other intermediate calculations and final answer to the nearest dollar amount. Enter your answer in dollars, not in millions.) TABLE 2 Present Value of $1 _ PV - $1 + NI 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 1 0.99010 0.98522 0.98039 0.97561 0.97087 0.96618 0.96154 0.95694 0.95238 2 0.98030 0.97066 0.96117 0.95181 0.94260 0.93351 0.92456 0.91573 0.90703 3 0.97059 0.95632 0.94232 0.92860 0.91514 0.90194 0.88900 0.87630 0.86384 4 0.96098 0.94218 0.92385 0.90595 0.88849 0.87144 0.85490 0.83856 0.82270 5 0.95147 0.92826 0.90573 0.88385 0.86261 0.84197 0.82193 0.80245 0.78353 5.5% 6.0% 7.0% 0.94787 0.94340 0.93458 0.89845 0.89000 0.87344 0.85161 0.83962 0.81630 0.80722 0.79209 0.76290 0.76513 0.74726 0.71299 8.0% 0.92593 0.85734 0.79383 0.73503 0.68058 0.0% 10.0% 11.0% 0.91743 0.90909 0.90090 0.84168 0.82645 0.81162 0.77218 0.75131 0.73119 0.70843 0.68301 0.65873 0.64993 0.62092 0.59345 12.0% 0.89286 0.79719 0.71178 0.63552 0.56743 13.0% 0.88496 0.78315 0.69305 0.61332 0.54276 6 0.94205 0.91454 0.88797 0.86230 0.83748 0.81350 0.79031 0.76790 0.74622 7 0.93272 0.00103 0.87056 0.84127 0.81309 0.78590 0.75992 0.73483 0.71068 8 0.92348 0.88771 0.85349 0.82075 0.78941 0.75941 0.73069 0.70319 0.67684 9 0.91434 0.87459 0.83676 0.80073 0.76642 0.73373 0.70259 0.67290 064461 10 0.90529 0.86167 0.82035 0.78120 0.74409 0.70892 0.67556 0.64393 0.61391 0.72525 0.70496 0.66634 0.63017 0.68744 0.66506 0.62275 0.58349 0.65160 0.62741 0.58201 0.54027 0.61763 0.59190 0.54393 0.50025 0.58543 0.55839 0.50835 0.46319 0.59627 0.56447 0.53464 0.50663 0.54703 0.51316 0.48166 0.45235 0.50187 0.46651 0.43393 0.40388 0.46043 0.42410 0.39092 0.36061 0.42241 0.38554 0.35218 0.32197 0.48032 0.42506 0.37616 0.33288 0.29450 11 0.89632 0.84893 0.80426 0.76214 0.72242 0.68495 0.64958 0.61620 0.58468 0.55491 0.52679 0.47509 12 0.88745 0.83639 0.78849 0.74356 0.70138 0.66178 0.62460 0.58966 0.55684 0.52598 0.49697 0.44401 13 0.87866 0.82403 0.77303 0.72542 0.68095 0.63040 0.60057 0.56427 0.53032 0.49856 0.46884 0.41496 14 0.86996 0.81185 0.75788 0.70773 0.66112 0.61778 0.57748 0.53997 0.50507 0.47257 0.44230 0.38782 15 0.86135 0.79985 0.74301 0.69047 0.64186 0.59689 0.55526 0.51672 0.48102 0.44793 0.41727 0.36245 0.42888 0.39711 0.36770 0.34046 0.31524 0.38753 0.35553 0.32618 0.29925 0.27454 0.35049 0.31863 0.20966 0.26333 0.23930 0.31728 0.28748 0.26070 0.28584 0.25668 0.23071 0.25751 0.22017 0.20416 0.23199 0.20462 0.18068 0.20900 0.182700.15089 16 0.85282 0.78803 0.72845 0.67362 0.62317 0.57671 0.53391 0.49447 0.45811 0.42458 0.39365 0.33873 17 0.84438 0.77639 0.71416 0.65720 0.60502 0.55720 0.51337 0.47318 0.43630 0.40245 0.37136 0.31657 18 0.83602 0.76491 0.70016 0.64117 0.58739 0.53836 0.49363 0.45280 0.41552 0.38147 0.35034 0.29586 19 0.82774 0.5361 0.68643 0.62553 0.57029 0.52016 0.47464 0.43330 0.39573 0.36158 0.33051 0.27651 20 0.81954 0.74247 0.67297 0.61027 0.55368 0.50257 0.45639 0.41464 0.37689 0.34273 0.31180 0.25842 0.29199 0.25187 0.27027 0.23107 0.25025 0.21199 0.23171 0.19449 0.21455 0.17843 0.21763 0.18829 0.19784 0.16963 0.17986 0.15282 0.16351 0.13768 0.14864 0.12403 0.16312 0.14564 0.13004 0.11611 0.10367 0.14150 0.12522 0.11081 0.09806 0.08678 21 0.81143 0.73150 0.65978 0.59539 0.53755 0.48557 0.43883 0.39679 0.35894 0.32486 0.29416 0.24151 22 0.80340 0.72069 0.64684 0.58086 0.52189 0.46915 0.42196 0.37970 0.34185 030793 0.27751 0.22571 23 0.79544 0.71004 0.63416 0.56670 0.50669 0.45329 0.40573 0.36335 0.32557 0.29187 0.26180 0.21095 24 0.78757 0.69954 0.62172 0.55288 0.49193 0.43796 0.39012 0.34770 0.31007 0.27666 0.24698 0.19715 25 0.77977 0.68921 0.60953 0.53939 0.47761 0.42315 0.37512 0.33273 0.29530 0.26223 0.23300 0.18425 0.19866 0.18.394 0.17032 0.15770 0.14602 0.16370 0.13513 0.11174 0150180.12285 0.10067 0.13778 0.11168 0.09069 0.12640 0.10153 0.08170 0.11597 0.09230 0.07361 0.09256 0.08264 0.07379 0.06588 0.05882 0.07680 0.06796 0.06014 0.05323 0.04710 30 0.74192 0.63976 0.55207 0.47674 0.41199 0.35628 0.30832 0.26700 0.23138 0.20064 0.17411 0.13137 0.09938 35 0.70591 0.59387 0.50003 0.42137 0.35538 0.29998 0.25342 0.21425 0.18129 0.15352 0.13011 0.09366 0.06763 40 0.67165 0.55126 0.45289 0.37243 0.30656 0.25257 0.20829 0.17193 0.14205 0.11746 0.09722 0.06678 0.04603 45 0.63905 0.51171 0.41020 0.32917 0.26444 0.21266 0.17120 0.13796 0.11130 0.08988 0.07265 0.04761 0.03133 50 0.60804 0.47500 0.37153 0.29094 0.22811 0.17905 0.14071 0.11071 0.08720 0.06877 0.05429 0.03395 0.02132 0.07537 0.04899 0.03184 0.02069 0.01345 0.05731 0.03558 0.02209 0.01372 0.00852 0.04368 0.02592 0.01538 0.00913 0.00542 0.03338 0.01894 0.01075 0.00610 0.00346 0.02557 0.01388 0.00753 0.00409 0.00222 TABLE 4 Present Value of an Ordinary Annuity of $1 PVA-10 NI 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 1 0.99010 0.98522 0.98039 0.97561 0.97087 0.96618 0.96154 0.95694 2 1.97040 1.95589 1.94156 1.92742 1 01347 .8995 1.88409 187267 3 2.94099 2.91220 2.88388 2.85602 2.82861 2.80164 2.77509 2.74896 4 3.90197 3.8543 3.80773 3.76197 3.71710 3.67 308 3.62990 3.58753 5 4.85343 4.78264 4.71346 4.64583 4.57971 4.51505 4.45182 4.38998 5.0% 0.95238 1.85041 2.72325 3.54595 4.32948 5.5% 6.0% 0.94787 0.94340 1.84632 1.83339 2.69793 2.67301 3.50515 3.46511 4.27028 4.21236 7.0% 8.0% 0.93458 0.92593 1.80802 1.78326 2.62432 2.57710 3.38721 3.31213 4.10020 3.99271 0.0% 0.0% 11.0% 12.0% 13.0% 0.91743 0.90909 0.90090 0.89286 0.88496 1.75911 1.73554 1.71252 1.69005 1.66810 2.53129 248685 2.44371 2.40183 2.36115 3.23972 3.16987 3.10245 3.03735 2.97447 3.88965 3.79079 3.69590 3.60478 3.51723 6 7 8 9 10 5.79548 6.72819 7.65168 8.56602 9.47130 5.69719 5.60143 6.59821 6.47199 7.48593 7.32548 8.36052 8.16224 9.22218 8.98259 5.50813 5.41719 5.32855 5.24214 5.15787 6.34039 623028 6.11454 6.00205 5.89270 7.17014 701969 6.87396 6.72274 6.59589 7.970877.78611 7.60769 7.43533 7.26879 8.75206 8.53020 8.31661 8.11090 7.91272 5.07569 4.99553 4.91732 5.78637 5.68297 5.58238 6.463216.23457 6.20979 7.10782 6.95220 6.80169 7.721737.53763 7.36000 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.99755 5.38929 5.206375.03295 4.86842 4.71220 4.56376 4.42261 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.79877 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 5.13166 702358 6.71008 6,41766 6.14457 5.88923 5.65022 5.42624 11 10.36763 10.07112 9.78685 9.51421 9.252629.00155 8.76048 8.52892 8.30641 8.09254 7.88687 749867 7.13896 6.80519 6.49506 6.20652 5.93770 5.68694 12 11.25508 10.90751 10.57534 10 25776 9.95400 9.66333 9.38507 9.11858 8.86325 8.61852 8.38384 7.94260 7.53608 7.16073 6.81369 6.49236 6.19437 5.91765 13 12.13374 11.73153 11.34837 10.98319 10.63496 10.30274 9.98565 9.68285 9.39357 9.11708 8.85268 8.35765 7.90378 7.48690 7.10336 6.74987 6.42355 6.12181 14 13.00370 12.54338 12.10625 11.60091 11.29607 10.92052 10.56312 10.22283 9.89864 9.58965 9.294988.74547 8.24424 7.78615 7.36669 6.98187 6.62817 6.30249 15 13.86505 12.34323 12.84926 12 38129 11.93794 11.51741 11.11839 10.73955 10.37966 10.03758 9.71225 9.10791 8.55048 806089 760608 7.19087 6 81086 6.46238 16 14.71787 14.13126 13.57771 13.05500 12.56110 12.00412 11.65230 11.23402 10.83777 10.46216 10.10590 944665 8.85137 17 15.56225 14.90765 14.29187 13.71220 13.16612 12.65132 12.16567 11.70719 11 27407 10.86461 10.47726 9.76322 9.12164 18 16.39827 15.67256 14.99203 14.35336 13.75351 13.18968 12.65930 12.15090 11.68959 11.24607 10.82760 10.05909 9.37189 19 17.22601 16 42617 15.67846 14.97899 14.32380 13.70984 13.13394 12,59329 12.06532 11.60765 11.15812 10.33560 9.60360 20 18.04555 17.16864 16.35143 15.58916 14.87747 14.21240 13.50033 13.00794 12.46221 11.95038 11.46092 10.50401 9.81815 8.31256 7.82371 7.37916 6.97399 6.60388 8.54363 8.02155 7.54879 7.11963 6.72909 8.75563 8.20141 7.70162 7.24967 6.83991 8.05011 8.36402 7.83929 736578 6.93797 9.12855 8.51356 7.96333 746944 7.02475 21 18.85698 17.90014 17.01121 16.18455 15.41502 14.69797 14.02916 13.40472 12.82115 12.27524 11.76408 10.83553 10.01680 22 19.66038 18.62082 17.65805 16.76541 15.93692 15.16712 14.45112 13.78442 13.16300 12.58317 12.04158 11.06124 10.20074 23 20.45582 19.33086 18.29220 17.33211 16.44361 15.62041 14.85684 14.14777 13.48857 12.87504 12.30338 1127219 10.37106 24 21.24339 20.03041 18.91393 17.88499 16.93554 16.05837 15 24696 14.49548 13.79864 13.15170 12.55036 11.46933 10.52876 25 22.02316 20.71961 19.52346 18.42438 17.41315 16.48151 15.62208 14.82821 14.09394 13.41393 12.78336 11.65358 10.67478 9.29224 8.64869 8.07507 7.56200 7.10155 9.44243 8.77154 8.17574 764465 7.16951 9.58021 8.88322 8.26643 7.71843 7.22966 9.70661 8.98474 8.34814 7.78432 728288 9.82258 9.07704 8.42174 7.84314 7.32998 30 25.80771 24.01584 22.39646 20.93029 19.60044 18.39205 17.29203 16.28889 15.37245 14.53375 13.76483 1240904 11.25778 10.27365 0.42601 8.69379 8.05518 7.49565 35 29.40858 27.07559 24.99862 23.14516 21.48722 20.00066 18.66461 17 46101 16.37419 15.39055 14.49825 12.94767 11.65457 10.56682 9.64416 8.85524 8.17550 7.58557 40 32.83469 29.91585 27.35548 25.10278 23.11477 21.35507 19.79277 18.40158 17.15909 16.04612 15.04630 13.33171 11.92461 10.75736 9.77905 8.95105 8.24378 7.63438 45 36.09451 3255234 29.49016 26.83302 24.51871 22.49545 20.72004 19.15635 17.77407 16.54773 15.45583 13.60552 12.10840 10.88120 9.86281 9.00791 8.28252 7.66086 50 39.19612 34.99969 31.42361 28.36231 25.72976 23.45562 21.48218 19.76201 18.25593 16.93152 15.76186 13.80075 12.23348 10.96168 9.91481 9.04165 8.30450 7.67524