Question

Requirement 1. Determine the present value of five-year bonds payable with face value of $91,000 and stated interest rate of 12%, paid semiannually. The market rate of interest is 12% at issuance. (Round intermediary calculations and final answer to the nearest wholo dallar) Present Value i Requirements When market rate of interest is 12% annually Enter any number in the edit fields and then click Check Answer. 1. Determine the present value of five-year bonds payable with face value of $91,000 and stated interest rate of 12%, paid semiannually. The market rate of interest is 12% at issuance. 2. Same bonds payable as in Requirement 1, but the market interest rate is 14%. 3. Same bonds payable as in Requirement 1, but the market interest rate is 8%. parts 2 remaining

Answer 1

(a)-The present value of the Bond if the market rate of interest is 12.00%

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$91,000]	FV	91,000
Coupon Amount [$91,000 x 12.00% x ½]	PMT	5,460
Market Interest Rate or Yield to maturity on the Bond [12.00% x ½]	1/Y	6
Maturity Period/Time to Maturity [5 Years x 2]	N	10
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Present Value of the Bond = $91,000

(b)-The present value of the Bond if the market rate of interest is 14.00%

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$91,000]	FV	91,000
Coupon Amount [$91,000 x 12.00% x ½]	PMT	5,460
Market Interest Rate or Yield to maturity on the Bond [14.00% x ½]	1/Y	7
Maturity Period/Time to Maturity [5 Years x 2]	N	10
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Present Value of the Bond = $84,609.

(c)-The present value of the Bond if the market rate of interest is 8.00%

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$91,000]	FV	91,000
Coupon Amount [$91,000 x 12.00% x ½]	PMT	5,460
Market Interest Rate or Yield to maturity on the Bond [8.00% x ½]	1/Y	4
Maturity Period/Time to Maturity [5 Years x 2]	N	10
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Present Value of the Bond = $105,762.