Hint(s) Check My Work Exercise 11-3 Valuing Bonds Using Present Value Use Table
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Exercise 11-3
Valuing Bonds Using Present Value
Use Table 1 and Table 2 to calculate present value answers.
Tsang, Inc., is considering the sale of two bond issues. Choice A is a $1,600,000 bond issue that pays semiannual interest of $128,000 and is due in 20 years. Choice B is a $1,600,000 bond issue that pays semiannual interest of $120,000 and is due in 15 years. Assume that the market interest rate for each bond is 12 percent.
Calculate the amount that Tsang will receive if both bond issues are made. (Calculate the present value of each bond issue and sum.)
eBookExercise 11-3
Valuing Bonds Using Present Value
Use Table 1 and Table 2 to calculate present value answers.
Tsang, Inc., is considering the sale of two bond issues. Choice A is a $1,600,000 bond issue that pays semiannual interest of $128,000 and is due in 20 years. Choice B is a $1,600,000 bond issue that pays semiannual interest of $120,000 and is due in 15 years. Assume that the market interest rate for each bond is 12 percent.
Calculate the amount that Tsang will receive if both bond issues are made. (Calculate the present value of each bond issue and sum.)
Total present value Choice A: $ Choice B: $ Total present value of both bonds:Explanation / Answer
PRESENT VALUE
CHOICE A
$ 19,67,030
CHOICE B
$ 18,33,102
TOTAL PRESENT VALE
$38,00,132
Present Value of Bond - Choice A
= $16,00,000 x (PVF 6%, 20Years) + $1,28,000 x PVAF( 6%, 20Year)
= ($16,00,000 x 0.3118) + ($1,28,000 x 11.46992)
= $ 498880 + $ 1468150
= $ 19,67,030
Present Value of Bond - Choice B
= $16,00,000 x (PVF 6%, 15Years) + $1,20,000 x PVAF( 6%, 15Year)
= ($16,00,000 x 0.41727) + ($1,20,000 x 9.71225)
= $ 667632 + $ 1165470
= $ 18,33,102
Total present value of both bonds = $ 19,67,030 + $ 18,33,102 = $38,00,132
PRESENT VALUE
CHOICE A
$ 19,67,030
CHOICE B
$ 18,33,102
TOTAL PRESENT VALE
$38,00,132
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