On July 1, 2010, Brower Industries issues $8,000,000 of 5-year, 11% bonds at an
ID: 2428065 • Letter: O
Question
On July 1, 2010, Brower Industries issues $8,000,000 of 5-year, 11% bonds at an effective interest rate of 12% receiving $7,705,595. Interest on the bonds is payable semiannually on December 31 and June 30.Q: Compute the price of $7,705,595 recieved for the bonds by using the tables of present value. Find the present value of the face amount and the present value of the semi-annual interest payments.
~The answer is: Present value of the face amount- $4,467,158 and the Present value of the semi-annual interest payments is $3,238,437
but I don't know how they solved this
Explanation / Answer
Similar to the last problem I helped you with: The present value of the face amount can be found by the following: PV = 8,000,000 / (1+.12/2)^10 = $4,467,158 Unfortunately I cannot find the tables that you are talking about. And then for the present value of the semi-annual interest payments, you will have to find out how much one interest payment is. $8,000,000*.11/2 = $440,000 Then, you have to use the table to figure out the multiplier for 10 periods at a 6% interest. I am pretty sure about this method, but if you could provide me with that table, it would help a lot.
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