On January 1, 2020, Swifty Corporation issued eight-year bonds with a face value of $5910000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 6%. Table values are:
Present value of 1 for 8 periods at
4% 0.731Present
value of 1 for 8 periods at
6% 0.627Present
value of 1 for 16 periods at
2% 0.728Present value of 1
for 16 periods at
3% 0.623Present value of
annuity for 8 periods at
4% 6.733Present
value of annuity for 8 periods at
6% 6.210Present
value of annuity for 16 periods at
2% 13.578Present
value of annuity for 16 periods at
3% 12.561
The present value of the principal is
a. $4320210.
b. $4302480.
c. $3681930.
d. $3705570.
Answer
· Correct ANswer = Option ‘C’ Present value of Principal = $ 3,681,930
Amount |
PV factor |
Present Values |
|
PV of Face Value of |
$ 5,910,000.00 |
0.62300 |
$ 3,681,930.00 |
>Market interest = 6%. Semi annual
= 6 x 6/12 = 3%
>Term = 8 years. Semi annual interest payment = 8 x 2 = 16
payments
>Hence, you have to look for
Present value factor under 3% for 16th period.
>PV = 0.623
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