Compute the following using the interest factors given below from the interest t
ID: 2579979 • Letter: C
Question
Compute the following using the interest factors given below from the interest tables:
a) Compute the price (present value) of the bond issued by ABC Company: Face Value=$7,000,000. Nominal interest rate 5%, market rate 6%, life of bond is 8 years. present value of $1 interest factor for 8 years and 6%: .6768 present value of annuity interest factor 8 years 6%: 6.2098
b) VHP company leased a group of equipment from 5 years at $152,000 a year lease payments. Assuming the interest rate is 7% (interest factor 4.1002). Compute PVA of leased assets and lease liability.
c) XYK Company purchased a building for $1,300,000, paid $300,000 cash and borrowed 1,000,000 using 15 year 6% mortgage. Note: the present value of annuity interest facto for 15 years and 6% is 9.7122. compute the annual payments of the mortgage. (PVA/interest factor)
Explanation / Answer
Answer a.
Face Value = $7,000,000
Nominal Interest Rate = 5%
Annual Coupon = 5%*$7,000,000 = $350,000
Market Rate = 6%
Life of Bond = 8 years
Proceed from Issue = $350,000 * PV of an Annuity of $1 (6%, 8) + $7,000,000 * PV of $1 (6%, 8)
Proceed from Issue = $350,000 * 6.2098 + $7,000,000 * 0.6768
Proceed from Issue = $6,911,030
Answer b.
Annual Lease Payment = $152,000
Period of lease = 5 years
Interest Rate = 7%
PVA of Lease Assets and Lease Liability = $152,000 * PV of an Annuity (7%, 5)
PVA of Lease Assets and Lease Liability = $152,000 * 4.1002
PVA of Lease Assets and Lease Liability = $623,230.40
Answer c.
Amount borrowed = $1,000,000
Period of loan = 15 years
Interest Rate = 6%
Annual Payment = $1,000,000 / PV of an Annuity (6%, 15)
Annual Payment = $1,000,000 / 9.7122
Annual Payment = $102,963.28
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