Determine the present value of five- year bonds
payable with face value of $88000 and stated interest rate of 14%,
paid semiannually. The market rate of interest is 14% at
issuance.
When market rate iof interest is 14% annually______(present
value)
present value of bond = [present value of annuity factor * interest payment] + [present value factor * face value]
here,
present value of annuity factor = [1-(1+r)^(-n)] / r
here,
r = 14% per annum =>14%*6/12=>7% =>0.07.
n = 5 years * 2 semi annual periods =>10 periods.
[1-(1.07)^(-10)]/0.07
=>0.4916507/0.07
=>7.02358143.
interest payment = $88,000*14%*6/12 =>$6,160.
present value factor = 1/(1+r)^n
=>1 / (1.07)^10
=>0.50834929.
face value = $88,000.
now,
present value of bond = [7.02358143*$6160] + [0.50834929*88000]
=>$88,000.
Determine the present value of five- year bonds payable with face value of $88000 and stated...
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