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Question 2 On January 1, 2017, Sunland Company issued eight-year bonds with a face value of...

Question 2

On January 1, 2017, Sunland Company issued eight-year bonds with a face value of $6110000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6%          0.627
Present value of 1 for 8 periods at 8%          0.540
Present value of 1 for 16 periods at 3%        0.623
Present value of 1 for 16 periods at 4%        0.534
Present value of annuity for 8 periods at 6%            6.210
Present value of annuity for 8 periods at 8%            5.747
Present value of annuity for 16 periods at 3%          12.561
Present value of annuity for 16 periods at 4%          11.652

The present value of the principal is

$3830970.
$3299400.
$3806530.
$3262740.

Solutions

Expert Solution

CALCULATION OF PRESENT VALUE OF THE BONDS
Working Notes:
Par value of the Bonds = $61,10,000
Coupon rate on this bond= 6%
Annual Coupon value = $3,66,600
Half Yearly Coupon Amount = $1,83,300
Market Rate of Interest = 8%
Half Yearly interest Rate = 4%
Life of the Bonds 8 Years
Half Yearly total Priod (8 Years X 2 ) 16 Period
Solution:
CALCULATION OF PAR VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY
Particulars Amount PV of 1 for 16 Periods At 4% Present Value
Principal Value of the Bonds $61,10,000                                  0.534 $32,62,740
PREsent Value of the Principal $32,62,740
Answer = Option 4 = $ 3,262,740

ekkarill92 answered 2 years ago
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