Homework Answers
Market value = $39,880.56
Working
| Market value is calculated by ADDING the: |
| Discounted face value of bonds payable at market rate of interest, and |
| Discounted Interest payments amount (during the lifetime) at market rate of interest. |
| Annual Rate | Applicable rate | Face Value | $ 60,000 | ||
| Market Rate | 6.00% | 6.00% | Term (in years) | 12 | |
| Coupon Rate | 2.00% | 2.00% | Total no. of interest payments | 12 |
| Bond Face Value | Market Interest rate (applicable for period/term) | |||||||
| PV of | $ 60,000 | at | 6.00% | Interest rate for | 12 | term payments | ||
| PV of $1 | 0.4970 | |||||||
| PV of | $ 60,000 | = | $ 60,000 | x | 0.49700 | = | $ 29,820 | A |
| Interest payable per term | at | 2.00% | on | $ 60,000 | ||||
| Interest payable per term | $ 1,200 | |||||||
| PVAF of 1$ | for | 6.00% | Interest rate for | 12 | term payments | |||
| PVAF of 1$ | 8.3838 | |||||||
| PV of Interest payments | = | $ 1,200.00 | x | 8.38380 | = | $ 10,061 | B | |
| Bond Value (A+B) | $ 39,880.56 |
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