Question

. Determine the present value of

1010​-year

bonds payable with face value of

$ 92 comma 000$92,000

and stated interest rate of

1414​%,

paid semiannually. The market rate of interest is

1414​%

at issuance. ​(Round intermediary calculations and final answer to the nearest whole​ dollar.)

	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

1616​%.

​(Round intermediary calculations and final answer to the nearest whole​ dollar.)

	Present Value
When market rate of interest is 16% annually

Requirement 3. Same bonds payable as in requirement​ 1, but the market interest rate is

88​%.

​(Round intermediary calculations and final answer to the nearest whole​ dollar.)

	Present Value
When market rate of interest is 8% annually

Answer 1

Correct Answer:

Requirement 1:

	Present value
When market rate of interest is 14% annually	$ 92,000

Working:

Annually		Formula Applied
Face Value of Bond	$                            92,000
Interest Semi-Annually @ 14%	$                               6,440	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 14%/2)	0.070	14%
Time Period (n) 10 years	20.00	10
Present Value of Face Value of Bond	$               23,774.54826	Face Value/(1+r%)^2n
Present Value of Interest payment	$                      68,225.45	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                            92,000	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                                      -	Issue Price - Face Value of Bonds

Requirement 2:

	Present value
When market rate of interest is 16% annually	$                   82,967

Working:

Annually		Formula Applied
Face Value of Bond	$                            92,000
Interest Semi-Annually @ 14%	$                               6,440	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 16%/2)	0.080	16%
Time Period (n) 10 years	20.00	10
Present Value of Face Value of Bond	$               19,738.43508	Face Value/(1+r%)^2n
Present Value of Interest payment	$                      63,228.87	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                            82,967	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                            (9,033)	Issue Price - Face Value of Bonds

Requirement 3:

	Present value
When market rate of interest is 8% annually	$                 129,509

Working:

Annually		Formula Applied
Face Value of Bond	$                            92,000
Interest Semi-Annually @ 14%	$                               6,440	(Face Value of Bonds * Coupon rate )
Semi-Annual Effective interest Rate ® ( 8%/2)	0.040	8%
Time Period (n) 10 years	20.00	10
Present Value of Face Value of Bond	$               41,987.59905	Face Value/(1+r%)^2n
Present Value of Interest payment	$                      87,521.70	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Bond	$                          129,509	PV of Face value of bond + PV of Interest Paid Annually
Premium or (Discount)	$                            37,509	Issue Price - Face Value of Bonds

End of answer.

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