Question

Present Value of Bonds Payable; Premium Moss Co. issued $100,000 of four-year, 12% bonds with interest payable semiannually, at a market (effective) interest rate of 11%. Determine the present value of the bonds payable, using the present value tables in Exhibit 8 and Exhibit 10. Note: Round to the nearest dollar.

Answer 1

Solution and Explanation:

Face Value of Bonds = $100,000

Annual Coupon Rate = 12.00% , Semi-annual Coupon Rate = 6.00%

Semiannual Coupon = 6.00% * $100,000 , Semiannual Coupon = $6,000

Annual Interest Rate = 9.00% , Semiannual Interest Rate = 4.50%

Time to Maturity = 5 years , Semiannual Period = 10

Present Value of Bonds  

$=\ 6,000 * \text { PVA of } \ 1(4.50 \%, 10)+\ 100,000 * \text { PV of } \ 1(4.50 \%, 10)$

Present Value of Bonds =$\ 6,000 * 7.91272+\ 100,000 * 0.64393$

Present Value of Bonds = $111,869

So, present value of the bonds payable is $111,869