Question

. On April 15, 2017, Melissa purchased $60,000 of Verbecke Co.'s 12%, 20-year bonds at face amount, with interest being paid on December 31 each year. Verbecke Co. has paid interest due on the bonds regularly. On April 15, 2021, market interest rates had risen to 14% and Melissa is considering selling the bonds.

Calculate the market value of Melissa’s bonds on April 14, 2021.

Answer 1

Period	Cash flows (60,000*12%)	Present value @ 14%	Present value
1	7,200	0.8771930	6,316
2	7,200	0.7694675	5,540
3	7,200	0.6749715	4,860
4	7,200	0.5920803	4,263
5	7,200	0.5193687	3,739
6	7,200	0.4555865	3,280
7	7,200	0.3996373	2,877
8	7,200	0.3505591	2,524
9	7,200	0.3075079	2,214
10	7,200	0.2697438	1,942
11	7,200	0.2366174	1,704
12	7,200	0.2075591	1,494
13	7,200	0.1820694	1,311
14	7,200	0.1597100	1,150
15	7,200	0.1400965	1,009
16	7,200	0.1228917	885
17	7,200	0.1077997	776
18	7,200	0.0945611	681
19	7,200	0.0829484	597
20	7,200	0.0727617	524
20	60,000	0.0727617	4,366
Market value of bonds			52,052