Question
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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 | |||||||
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