Matthew owns a warehouse that is used in business while Pamela owns land. Matthew exchanges the warehouse for the land, which wi
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Answer:
Young should report proceeds from the sale of bonds as equal to $864,884
Explanation:
The proceeds on the sale of bonds is equivalent to the present value of all the cash flows that are likely to accrue to an investor once the bond is bought. These cash-flows are the periodic coupon payments that are paid semi-annually and the par value of the bond that will be paid at the end of the 5 years.
During the 5 years, there are 10 equal periodic coupon payments that will be made. In each year, the total coupon paid will be
and this payment will be split into two equal payments equal to . This stream of cash-flows is an ordinary annuity
The periodic market rate is equal to
The PV of the cashflows = PV of the coupon payments + PV of the par value of the bond
=$40,000*PV Annuity Factor for 10 periods at 4%+