a. What is the present value of 4 equal annual payments of $12,000 with an annua

Question

a. What is the present value of 4 equal annual payments of $12,000 with an annual interest rate of 5%?

b. What is the present value of single payment of $20,000 to be paid in 5 years with an interest rate of 6%?

c. On January 1, Y4 Seton Corp. issued a three-year, $300,000, 6% bond (stated rate), which sold for a yield of 7% (the market rate). Interest is paid annually on December 31.

At what price was the bond issued?

d. On January 1, Y6 Tosen Corp. issued a four-year, $100,000, 6% bond (stated rate), which sold for a yield of 6% (the market rate). Interest is paid annually on December 31.

At what price was the bond issued?

PRESENT VALUE TABLES Table B: Present Value of $1 Table A: PV of $1 Received Each Period Annuity) N 4% 5% 6% 7% 8% 9% 10% N 4% 5% 6% 7% 8% 9% 10% 1 0.96 0.95 0.94 0.93 0.93 0.92 0.91 1 0.96 0.95 0.94 0.93 0.93 0.92 0.91 2 1.89 1.86 1.83 1.81 1.78 1.76 1.74 2 0.92 0.91 0.89 0.87 0.86 0.84 0.83 3 2.78 2.72 2.67 2.62 2.58 2.53 2.49 3 0.89 0.86 0.84 0.82 0.79 0.77 0.75 4 3.63 3.55 3.47 3.39 3.31 3.24 3.17 4 0.85 0.82 0.79 0.76 0.74 0.71 0.68 5 4.45 4.33 4.21 4.10 3.99 3.89 3.79 5 0.82 0.78 0.75 0.71 0.68 0.65 0.62 6 5.24 5.08 4.92 4.77 4.62 4.49 4.36 6 0.79 0.75 0.70 0.67 0.63 0.60 0.56

Explanation / Answer

a present value = 12000*3.55= 42600 b Present value = 20000*0.75= 15000 c Amount PV factor Present value Interest 18000 2.62 47160 Principal 300000 0.82 246000 Issue price 293160 d Issue price = $100000

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