Question

Requirement 1. Determine the present value of five-year bonds payable with face value of $92,000 and stated interest rate of 14%. paid semiannually. The market rate of interest is 14% at issuance. (Round intermediary calculations and final answer to the nearest whole dol Present Value When market rate of interest is 14% annually Requirement 2. Same bonds payable as in requirement 1, but the market interest rate is 10%. (Round intermediary calculations and fina answer to the nearest whole dollar.) Present Value When market rate of interest is 10% annually Requirement 3. Same bonds payable as in requirement 1. but the market interest rate is 10% (Round intermediary calculations and final answer to the nearest whole dollar.) Present Value When market rate of interest is 10% annually Enter any number in the edit Telds and then continue to the next question

Answer 1

Calculation of present value using the financial calculator:

B Requirement 1 2 Face value 92000 3 Number of years 4 Interest rate 0.14 5 Market rate 0.14 6 Present value of principal =PV(B5,B3,,-B2) 7 Present value of interest =PV(B4/2,B3*2,B2*-(B4/2).,0) 8 Present value =B6+B7 10 Requirement 2 11 Face value 92000 12 Number of years 13 Interest rate 0.14 14 Market rate 0.16 15 Present value of principal =PV(B14,B12,,-B11) 16 Present value of interest =PV(B13/2,B12*2,B11*-(B13/2),,0) 17 Present value =B15+B16 18 Requirement 3 20 Face value 92000 21 Number of years 22 Interest rate 0.14 23 Market rate 0.1 24 Present value of principal =PV(B23,B21,,-B20) 25 Present value of interest =PV(B22/2.B21*2,B20*-(B22/2)0) 26 Present value =B24+B25

Results of the excel sheet are as follows:

92000 14% 14% $47,782 $45.232 $93,014 92000 14% Requirement 1 2 Face value 3 Number of years 4 Interest rate 5 Market rate 6 Present value of principal 7 Present value of interest 8 Present value 9 10 Requirement 2 11 Face value 12 Number of years 13 Interest rate 14 Market rate 15 Present value of principal 16 Present value of interest 17 Present value 18 Requirement 3 20 Face value 21 Number of years 22 Interest rate 23 Market rate 24 Present value of principal 25 Present value of interest 26 Present value 16% $43,802 $45.232 $89,034 92000 14% 10% $57,125 $45.232 $102,357

Thus, the present value of requirement 1, 2 and 3 are $93,014, $89,034 and $102,357 respectively.