Question

Interest rates determine the present value of future amounts.​ (Round to the nearest​ dollar.

Requirements: 1. Determine the present value of five​-year bonds payable with face value of $ 91000 and stated interest rate of 10​%, paid semiannually. The market rate of interest is 10​% at issuance. 2. Same bonds payable as in Requirement​ 1, but the market interest rate is 16​%. 3. Same bonds payable as in Requirement​ 1, but the market interest rate is 8​%.

Answer 1

Solution 1:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (10%/2)	5.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.613913	*	$91,000	=	$55,866
Interest (Annuity) [$91,000*10%*6/12]	7.721735	*	$4,550	=	$35,134
Price of Bonds					$91,000

Solution 2:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (16%/2)	8.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.463193	*	$91,000	=	$42,151
Interest (Annuity) [$91,000*10%*6/12]	6.710081	*	$4,550	=	$30,531
Price of Bonds					$72,681

Solution 3:

Chart Values are based on:
n= (5 Years*2)	10	Half years
i= (8%/2)	4.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.675564	*	$91,000	=	$61,476
Interest (Annuity) [$91,000*10%*6/12]	8.110896	*	$4,550	=	$36,905
Price of Bonds					$98,381