Homework Answers
| Part 1-When Market Interest rate is 10% | |||
| Face Amount | $500,000 | ||
| Interest Payment | 500000*8% =$40,000 | ||
| Market Interest rate per period | 10.00% | ||
| Cash Flow | Table Value(PV of 10% for 10 years) | Amount | Present Value |
| PV of Interest | 6.14457 | $40,000 | $245,783 |
| PV of Principal | 0.38554 | $500,000 | $192,770 |
| PV of Bonds Payable(Issue Price) | $438,553 | ||
| Note:The Present value of market interest rate is rounded off to 5 decimal points | |||
| Part 1-When Market Interest rate is 6% | |||
| Face Amount | $500,000 | ||
| Interest Payment | 500000*8% =$40,000 | ||
| Market Interest rate per period | 6.00% | ||
| Cash Flow | Table Value(PV of 6% for 10 years) | Amount | Present Value |
| PV of Interest | 7.36009 | $40,000 | $294,404 |
| PV of Principal | 0.55839 | $500,000 | $279,195 |
| PV of Bonds Payable(Issue Price) | $573,599 | ||
| Note:The Present value of market interest rate is rounded off to 5 decimal points | |||
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