Question

CUEIL ALLEMPLIFIURIES On January 1, 2017. Crane Company issued eight year bonds with a face value of $6150000 and a stated interest rate of 8% payable semiannually on June 30 and December 31. The bonds were sold to yield 10%. Table values are: Present value of 1 for 8 periods at 8% Present value of 1 for 8 periods at 10% Present value of 1 for 16 periods at 4% Present value of 1 for 16 periods at 5% Present value of annuity for 8 periods at 8% Present value of annuity for 8 periods at 10% Present value of annuity for 16 periods at 4% Present value of annuity for 16 periods at 5% 0.540 0.467 0.534 0.458 5.747 5.335 11.652 10.838 The present value of the interestis $2827524 $2624820 $2866392 $2666148 Attempts: 0 of 1 used Submit Answer

Answer 1

Option (d) is correct

Here the semi annual interest payments are same every year, so it is an annuity. We will use the semi annual yield rate to calculate the present value of bonds.

Bond interest = $6150000 * 8% * 6 / 12 = $246000

Semi annual yield = 10% * 6 / 12 = 5%

Bond interest present value = Bond interest * Present value of annuity for 16 periods at 5%

Bond interest present value = $246000 * 10.838 = $2666148