Question
In: Accounting
Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $22,000,000 of...
Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $22,000,000 of three-year, 8% bonds, with interest payable semiannually, at a market (effective) interest rate of 10%.
Determine the present value of the bonds payable. Round your answer to the nearest dollar. $_____________________
Solutions
Expert Solution
Correct Answer:
| Present value of bonds payables | $ 20,883,348 |
Working:
| Semi-Annually | Formula Applied | ||
| Face Value of Bond | $ 22,000,000 | ||
| Interest Semi-Annually @ 8% | $ 880,000 | (Face Value of Bonds * Coupon rate ) / 2 | |
| Semi-Annual Effective interest Rate r = ( 10%) | 0.0500 | 10.0% | |
| Time Period (n) 3 years | 6.00 | 3 | |
| Present Value of Face Value of Bond | $ 16,416,739 | Face Value/(1+r%)^2n | |
| Present Value of Interest payment | $ 4,466,609 | Interest * ((1-(1+r)^-n)/r) | |
| Present value of bonds payables | $ 20,883,348 | PV of Face value of bond + PV of Interest Paid Annually | |
| Premium or (Discount) | $ (1,116,652) | Issue Price - Face Value of Bonds |
End of answer.
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ekkarill92 answered 3 years agoRelated Solutions
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