Question

Pinder co. produces and sells high-quality video equipment. to finance its operations, pinder co. issued $25,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. determine the present value of the bonds payable

Answer 1

$23,021,820.82 is the correct answer. It is the present value of the future maturity value and the $875,000 interest payments, discounted at 4.5%.

First calculate the amount of each interest payment = 25000000*7%/2 = 875000
Calculate periodic market interest rate = 9%/2 = 4.5%