Use the following tables to calculate the present value of a $152,000 @ 5%, 6-ye

Question

Use the following tables to calculate the present value of a $152,000 @ 5%, 6-year bond that pays $7,600 interest annually, if the market rate of interest is 6%. Round to the nearest dollar.

Periods

5 %

6 %

7 %

10 %

Periods

5 %

6 %

7 %

10 %

1

.95238

.94340

.93458

.90909

1

.95238

.94340

.93458

.90909

2

.90703

.89000

.87344

.82645

2

1.85941

1.83339

1.80802

1.73554

3

.86384

.83962

.81630

.75131

3

2.72325

2.67301

2.62432

2.48685

4

.82270

.79209

.76290

.68301

4

3.54595

3.46511

3.38721

3.16987

5

.78353

.74726

.71299

.62092

5

4.32948

4.21236

4.10020

3.79079

6

.74622

.70496

.66634

.56447

6

5.07569

4.91732

4.76654

4.35526

7

.71068

.66506

.62275

.51316

7

5.78637

5.58238

5.38929

4.86842

8

.67684

.62741

.58201

.46651

8

6.46321

6.20979

5.97130

5.33493

9

.64461

.59190

.54393

.42410

9

7.10782

6.80169

6.51523

5.75902

10

.61391

.55839

.50835

.38554

10

7.72173

7.36009

7.02358

6.14457

$____________________

Present Value of $1 ¦ Present Value of Annuity of $1

Periods

5 %

6 %

7 %

10 %

¦

Periods

5 %

6 %

7 %

10 %

1

.95238

.94340

.93458

.90909

¦

1

.95238

.94340

.93458

.90909

2

.90703

.89000

.87344

.82645

¦

2

1.85941

1.83339

1.80802

1.73554

3

.86384

.83962

.81630

.75131

¦

3

2.72325

2.67301

2.62432

2.48685

4

.82270

.79209

.76290

.68301

¦

4

3.54595

3.46511

3.38721

3.16987

5

.78353

.74726

.71299

.62092

¦

5

4.32948

4.21236

4.10020

3.79079

6

.74622

.70496

.66634

.56447

¦

6

5.07569

4.91732

4.76654

4.35526

7

.71068

.66506

.62275

.51316

¦

7

5.78637

5.58238

5.38929

4.86842

8

.67684

.62741

.58201

.46651

¦

8

6.46321

6.20979

5.97130

5.33493

9

.64461

.59190

.54393

.42410

¦

9

7.10782

6.80169

6.51523

5.75902

10

.61391

.55839

.50835

.38554

¦

10

7.72173

7.36009

7.02358

6.14457

Explanation / Answer

Calculation of present value of bond

Year

Annual interest + bond re payment ($)

Total cash outflow ($)

PV Factors @6%

Present value of annual interest and bond repayment

1

$7,600

$7,600

0.8434

$6,409.84

2

$7,600

$7,600

0.89

$6,764.00

3

$7,600

$7,600

0.83962

$6,381.11

4

$7,600

$7,600

0.79209

$6,019.88

5

$7,600

$7,600

0.74726

$5,679.18

6

7600 +152000

$159,600

0.70496

$112,511.62

Present value of the bond

$143,765.63

The present value of a $ 152,000 6 year bonds the pays $ 7,600 interest annually, is $ 143,000.

Calculation of present value of bond

Year

Annual interest + bond re payment ($)

Total cash outflow ($)

PV Factors @6%

Present value of annual interest and bond repayment

1

$7,600

$7,600

0.8434

$6,409.84

2

$7,600

$7,600

0.89

$6,764.00

3

$7,600

$7,600

0.83962

$6,381.11

4

$7,600

$7,600

0.79209

$6,019.88

5

$7,600

$7,600

0.74726

$5,679.18

6

7600 +152000

$159,600

0.70496

$112,511.62

Present value of the bond

$143,765.63

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