Please provide solution. Multiple Choice Question 61 On January 1, 2014, Ellison

Question

Please provide solution.

Multiple Choice Question 61 On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 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% 627 Present value of 1 for 8 periods at 8% 540 Present value of 1 for 16 periods at 3% 623 534 Present value of 1 for 16 periods at 4% 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 interest is $1,398,240 $1,490,400 $1,507,320 $1,379,280

Explanation / Answer

Interest payment semi-annually = 4000000 x (6/2)% = $120000

Present value of annuity for 16 periods @4% = 12.561

Present value of interest = 120000 x 11.652

= $1398240

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