Question

Present value of bonds payable; premium Moss Co. issued $42,000,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable using the present value tables in Exhibits 8 and 10. Round to the nearest dollar.

Answer 1

Answer:

$45,323,443.20  

Explanation:

The present value of the bonds consist of the present value of the semiannual interest payment i.e$42,000,000*11%*6/12=$2,310,000.00

The semiannual payment would be multiplied by the annuity for ten periods (5 years *2) using 4.5% (11%/2)   which is 7.91272

present value of semiannual interest payment=7.91272 *2,310,000.00=$ 18,278,383.20  

Present value of face value in after 10 periods=0.64393 *$42,000,000=$ 27,045,060.00  

Total present value=$ 27,045,060.00+$18,278,383.20=$45,323,443.20