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Present Value of Bonds Payable; Discount Pinder Co. produces and sells high-quality video equipment. To finance...

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 five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%.

Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar.
$

Present Value of Bonds Payable; Premium

Moss Co. issued $100,000 of five-year, 12% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%.

Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7.

Note: Round final answer to the nearest dollar.

$

Solutions

Expert Solution

CALCULATION OF THE VALUE OF THE BOND WHEN INTEREST IS PAID SEMI ANNUALLY - ISSUED AT DISCOUNT
Step 1 : Calculation of Semi Annual Coupon Payments
Par value of the bond issued is   = $2,50,00,000
Annual Coupon % 7.00%
Annual Coupon Amount $17,50,000
Semi Annual Coupon Amount $8,75,000
Step 2: Calculate number of years to Maturity
Number of years to maturity = 5 years
Interest is paid semi annyally so total period = 5 Years * 2 = 10 Periods
Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
Market rate of interest or Yield to Maturity or Required Return = 9 %
Bonds interest is paid semi annualy means so discounting factor = 9 % /2= 4.5 %
PVF = 1 / Discount rate = 1/ 1.045
Result of above will again divide by 1.045 , repeat this lat period
Period Interest Amount (In Million) PVF @ 4.5% PresentValue
1 Interest $8,75,000                     0.9569 $8,37,320.57
2 Interest $8,75,000                     0.9157 $8,01,263.71
3 Interest $8,75,000                     0.8763 $7,66,759.53
4 Interest $8,75,000                     0.8386 $7,33,741.18
5 Interest $8,75,000                     0.8025 $7,02,144.67
6 Interest $8,75,000                     0.7679 $6,71,908.77
7 Interest $8,75,000                     0.7348 $6,42,974.90
8 Interest $8,75,000                     0.7032 $6,15,286.99
9 Interest $8,75,000                     0.6729 $5,88,791.37
10 Interest $8,75,000                     0.6439 $5,63,436.72
10 Par Value $2,50,00,000                     0.6439 $1,60,98,192.05
Total $2,30,21,820.46
Current Bonds Price = $2,30,21,820.46
SIMULTANEOUSLY WE CAN SOLVE WITH BELOW MEHTOD
OR Cumulative value of $ 1 @ 9 % in 5 Years
Interest $8,75,000.00                     7.9127       69,23,628.40
Par Value at 30th Period $2,50,00,000                     0.6439 1,60,98,192.05
Current Bonds Price 2,30,21,820.46
CALCULATION OF THE VALUE OF THE BOND WHEN INTEREST IS PAID SEMI ANNUALLY - ISSUED AT PREMIUM
Step 1 : Calculation of Semi Annual Coupon Payments
Par value of the bond issued is   = $2,50,00,000
Annual Coupon % 12.00%
Annual Coupon Amount $30,00,000
Semi Annual Coupon Amount $15,00,000
Step 2: Calculate number of years to Maturity
Number of years to maturity = 5 years
Interest is paid semi annyally so total period = 5 Years * 2 = 10 Periods
Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
Market rate of interest or Yield to Maturity or Required Return = 9 %
Bonds interest is paid semi annualy means so discounting factor = 9 % /2= 4.5 %
PVF = 1 / Discount rate = 1/ 1.045
Result of above will again divide by 1.045 , repeat this lat period
Period Interest Amount (In Million) PVF @ 4.5% PresentValue
1 Interest $15,00,000                     0.9569 $14,35,406.70
2 Interest $15,00,000                     0.9157 $13,73,594.93
3 Interest $15,00,000                     0.8763 $13,14,444.91
4 Interest $15,00,000                     0.8386 $12,57,842.02
5 Interest $15,00,000                     0.8025 $12,03,676.57
6 Interest $15,00,000                     0.7679 $11,51,843.61
7 Interest $15,00,000                     0.7348 $11,02,242.69
8 Interest $15,00,000                     0.7032 $10,54,777.69
9 Interest $15,00,000                     0.6729 $10,09,356.64
10 Interest $15,00,000                     0.6439 $9,65,891.52
10 Par Value $2,50,00,000                     0.6439 $1,60,98,192.05
Total $2,79,67,269.32
Current Bonds Price = $2,79,67,269.32
SIMULTANEOUSLY WE CAN SOLVE WITH BELOW MEHTOD
OR Cumulative value of $ 1 @ 9 % in 5 Years
Interest $15,00,000.00                     7.9127 1,18,69,077.27
Par Value at 30th Period $2,50,00,000                     0.6439 1,60,98,192.05
Current Bonds Price 2,79,67,269.32

ekkarill92 answered 1 year ago
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