Question

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.

$

Answer 1

	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