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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.

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letmeanswer

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  

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

Present Value of Bonds =[tex]\$ 6,000 * 7.91272+\$ 100,000 * 0.64393[/tex]

Present Value of Bonds = $111,869

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

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