#5
#7Homework Answers
Present Value of the bonds payable = $ 290,809
Workings:
| Selling Price of the bond | = | Present Value of Lump Sum + Present Value of Interest Payments | |||||||
| Computation of Present Value of Lump Sum | |||||||||
| Market Rate of Interest | = | 5% | (10% / 2) | ||||||
| No. of periods | = | 10 | (5 years x 2) | ||||||
| Present Value Factor @ 5% | = | 0.61391 | |||||||
| (a) | Present Value of Lump Sum | = | $ 1,71,894.80 | ($ 280000 x 0.61391) | |||||
| Computation of Present Value of Interest Payments | |||||||||
| PVAF @ 5% for 10 periods | = | 7.72173 | |||||||
| Interest Expense | = | $ 15,400.00 | ($ 280000 x 5.5%) | ||||||
| (b) | Present Value of Interest | = | $ 1,18,914.64 | ($ 15400 x 7.72173) | |||||
| (a+b) | Issue Price of the bond | = | $ 171895 + $ 118915 | ||||||
| = | $ 2,90,809 | ||||||||
Please let me know if you find this incorrect, will surely help you out. Thank you
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