Question

Present value of bonds payable; discount

Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $25,000,000 of three-year, 10% bonds, with interest payable semiannually, at a market (effective) interest rate of 11%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.

Determine the present value of the bonds payable. Round your answer to the nearest dollar.

$  

Present value of bonds payable; discount
DATA
Face amount of bonds	$25,000,000
Contract rate of interest	10%
Term of bonds, years	3
Market rate of interest	11%
Interest payment	Semiannual
Using formulas and cell references, perform the required analysis, and input your answer into the Amount column. Transfer the numeric result for the green entry cell (B13) into the appropriate field in CNOWv2 for grading.
	Amount	Formula
PV of bonds

Answer 1

C
	Coupon Rate per period	5%
	Period	6
	Effective/Market rate per period	5.5%
	Bond amount	$2,50,00,000
1	Issue price of bonds	Period	Cashflows	Present value	Calculation
		1	$12,50,000	$11,84,834	(1250000/(1+0.055)^1)
		2	$12,50,000	$11,23,066	(1250000/(1+0.055)^2)
		3	$12,50,000	$10,64,517	(1250000/(1+0.055)^3)
		4	$12,50,000	$10,09,021	(1250000/(1+0.055)^4)
		5	$12,50,000	$9,56,418	(1250000/(1+0.055)^5)
		6	$2,62,50,000	$1,90,37,703	(26250000/(1+0.055)^6)
	PV of Bond			$2,43,75,559
2	Amortisation schedule indicating effetive interest expense
	Payment Number	Cash payment	Effective interest	Discount amortisation	Oustanding balance
	0.00				$                    2,43,75,559
	1.00	$          12,50,000	$        13,40,656	$                 90,656	$                    2,44,66,214
	2.00	$          12,50,000	$        13,45,642	$                 95,642	$                    2,45,61,856
	3.00	$          12,50,000	$        13,50,902	$              1,00,902	$                    2,46,62,758
	4.00	$          12,50,000	$        13,56,452	$              1,06,452	$                    2,47,69,210
	5.00	$          12,50,000	$        13,62,307	$              1,12,307	$                    2,48,81,517
	6.00	$       2,62,50,000	$        13,68,483	$       (2,48,81,517)	$                                     -
		$3,25,00,000	$81,24,441