Question
In: Accounting
b. Maria Inc. issued a $5 million 8% 10 year bond. The bonds were issued on...
b. Maria Inc. issued a $5 million 8% 10 year bond. The bonds were issued on January 1, 2019. The bond pays interest annually on December 31. The bonds are priced to yield a market rate of 10%. PV factor from PV of lump sum table (8%, 10 years) = .46319 PV factor from PV of ordinary annuity table (8%, 10 years) = 6.71008 PV factor from PV lump sum table (10%, 10 years) = .38554 PV factor from PV of ordinary annuity table (10%, 10 years) = 6.14457 Calculate present value of the Bond on January 1, 2019.
Show calculations.
Solutions
Expert Solution
Annual Bond interest = 5000,000*8% = 400,000
Present Value of Interet Payamnet = $400,000* PVA at Matket interest rate
= $400,000*6.14457 = 2457828
Present value of Maturity Value = $5000,000 * PV at market interet rate
=5000,0000*0.38554 = 1927700
Present value of the bond = 2457828+1927700 = 4,385,528 (Answer)
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