Question

eBook Calculator Print Item Present Value of Bonds Payable; Discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder Co. issued $25,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable, using the present value tables in Exhibit B and Exhibit 10. Round to the nearest dollar.

Answer 1

CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID HLF ANNUALLY
Step 1 : Calculation of Semi Annual Coupon Payments
Par value of the bond issued is   =		$2,50,00,000
Annual Coupon %			7.00%
Annual Coupon Amount			$17,50,000
Half Year Coupon Amount =		$8,75,000
Step 2: Calculate number of years to Maturity
Number of years to maturity = 5 years
No. of Half Year Period = 5 Years X 2 Period =	10 Periods
Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
Market rate of interest or Yield to Maturity or Required Return = 9%
Half yearly Discount rate = 9 % / 2 =	4.50%
PVF = 1 / Discount rate = 1/ 1.045
Result of above will again divide by 1.045 , repeat this lat period
Period	Interest	Amount (In Million)	PVF of $ 1 @ 4.5%	PresentValue
1	Interest	$8,75,000	0.9569	$8,37,321
2	Interest	$8,75,000	0.9157	$8,01,264
3	Interest	$8,75,000	0.8763	$7,66,760
4	Interest	$8,75,000	0.8386	$7,33,741
5	Interest	$8,75,000	0.8025	$7,02,145
6	Interest	$8,75,000	0.7679	$6,71,909
7	Interest	$8,75,000	0.7348	$6,42,975
8	Interest	$8,75,000	0.7032	$6,15,287
9	Interest	$8,75,000	0.6729	$5,88,791
10	Interest	$8,75,000	0.6439	$5,63,437
10	Bond Principal Value	$2,50,00,000	0.6439	$1,60,98,192
	Total			$2,30,21,820
	Present Value of the Bonds Payable =		$2,30,21,820
Answer = PV of the Bonds Payable = $ 23,021,820