E12A-30 Determining the present value of bonds payable Leaming Objective 7 Appen
ID: 2532985 • Letter: E
Question
E12A-30 Determining the present value of bonds payable Leaming Objective 7 Appendix 12A 2. Present Value $77,594 Interest rates determine the present value of future amounts. (Round to the nearest dollar.) Requirements 1. Determine the present value of 10-year bonds payable with face value of $86,000 and stated interest rate of 14%, paid semiannually. The market rate of interest is 14% at issuance. 2. Same bonds payable as in Requirement 1, but the market interest rate is 16%. 3, Same bonds payable as in Requirement 1, but the market interest rate is 12%.Explanation / Answer
Answers
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 86,000.00
at
7%
Interest rate for
20
term payments
PV of $1
0.258419003
PV of
$ 86,000.00
=
$ 86,000.00
x
0.258419
=
$ 22,224.03
A
Interest payable per term
at
7%
on
$ 86,000.00
Interest payable per term
$ 6,020.00
PVAF of 1$
for
7%
Interest rate for
20
term payments
PVAF of 1$
10.59401425
PV of Interest payments
=
$ 6,020.00
x
10.5940142
=
$ 63,775.97
B
Bond Value (A+B)
$ 86,000.00
Under Requirement 1, Face Value and Present Value of Bond will be same $86,000 because its Interest rate and market rate are SAME.
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 86,000.00
at
8%
Interest rate for
20
term payments
PV of $1
0.214548207
PV of
$ 86,000.00
=
$ 86,000.00
x
0.214548
=
$ 18,451.15
A
Interest payable per term
at
7%
on
$ 86,000.00
Interest payable per term
$ 6,020.00
PVAF of 1$
for
8%
Interest rate for
20
term payments
PVAF of 1$
9.818147407
PV of Interest payments
=
$ 6,020.00
x
9.81814741
=
$ 59,105.25
B
Bond Value (A+B)
$ 77,556.39
Difference is due to rounding off of amount- For exact answer, use figure given in your Factor Table.
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 86,000.00
at
6%
Interest rate for
20
term payments
PV of $1
0.311804727
PV of
$ 86,000.00
=
$ 86,000.00
x
0.311805
=
$ 26,815.21
A
Interest payable per term
at
7%
on
$ 86,000.00
Interest payable per term
$ 6,020.00
PVAF of 1$
for
6%
Interest rate for
20
term payments
PVAF of 1$
11.46992122
PV of Interest payments
=
$ 6,020.00
x
11.4699212
=
$ 69,048.93
B
Bond Value (A+B)
$ 95,864.13
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 86,000.00
at
7%
Interest rate for
20
term payments
PV of $1
0.258419003
PV of
$ 86,000.00
=
$ 86,000.00
x
0.258419
=
$ 22,224.03
A
Interest payable per term
at
7%
on
$ 86,000.00
Interest payable per term
$ 6,020.00
PVAF of 1$
for
7%
Interest rate for
20
term payments
PVAF of 1$
10.59401425
PV of Interest payments
=
$ 6,020.00
x
10.5940142
=
$ 63,775.97
B
Bond Value (A+B)
$ 86,000.00
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