I need help plz. This is a quiz for chapter 10. The book is financial and manage

Question

I need help plz. This is a quiz for chapter 10. The book is financial and managerial accounting wild, 6e

as 10-5 Computing bond price P1 Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of Confirm that the bonds' selling price is approximately correct (within $100), Use the present value tables B.1 and B.3 in Appendix B. (Round all table values to 4 declimal places, and use the rounded table values in calculations. Round your other final answers to nearest whole dollar amount) Per Value x Price Selling Price $ 281.400 Table ValuePresent Value 240,000 Cash Flow $240,000 par (maturity) value $12000 interest payment Price of Bond Difference due to rounding of table values 281.400 References eBook & Resources

Explanation / Answer

1) The present value will be calculated using semi annual market interest rate of 4% (i.e. 8%*6/12) for 30 periods (i.e. 15 years* 2 semi annual periods)

Table value for discounting matuarity value of $240,000 = PVF(4%,30) = 0.3083

Table Value for discounting interest payment of $12,000 = PVAF(4%,30) = 17.2920

Present Value of Matuarity Value = $240,000*0.3083 = $73,992

Present Value of Interest Payment = $12,000*17.2920 = $207,504

2) The present value will be calculated using semi annual market interest rate of 5% (i.e. 10%*6/12) for 20 periods (i.e. 10 years* 2 semi annual periods)

Table value for discounting matuarity value of $250,000 = PVF(5%,20) = 0.3769

Table Value for discounting interest payment of $10,000 = PVAF(5%,20) = 12.4622

Present Value of Matuarity Value = $250,000*0.3769 = $94,225

Present Value of Interest Payment = $10,000*12.4622 = $124,622

Par Value x Price = Selling price $240,000 117 1/4 = $281,400 Cash Flow Table Value Present Value $240,000 par (matuarity) value 0.3083 $73,992 $12,000 interest payment 17.2920 $207,504 Price of Bonds ($73,992+$207,504) $281,496 Difference due to rounding of table values ($281,496-$281,400) $96

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