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Homework answers / question archive / Lev Corp issued $200 in principal of 4-year bonds with a 6

Lev Corp issued $200 in principal of 4-year bonds with a 6

Accounting

Lev Corp issued $200 in principal of 4-year bonds with a 6.0% stated interest rate and semi-annual interest payments. At the time of the issuance, the discount rate equaled the stated interest rate. What is the annuity factor for the interest payments? Round to two decimal places.

 

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Computation of Annuity Factor for Interest Payments:

PVIFA = (1 - (1 + r)^-n) / r

Here,

PVIFA = Present Value Interest Factor of Annuity 

r = Interest Rate = 6%/2 = 3%

n = Number of Periods = 4 Years *2 Semiannual Periods = 8

 

PVIFA = (1-(1+3%)^-8)/3% = 7.0197

 

Or We can calculate this as follows:

Year PVIF @3%  
    Calculation
1 0.9709  =1/(1+3%)^1
2 0.9426  =1/(1+3%)^2
3 0.9151  =1/(1+3%)^3
4 0.8885  =1/(1+3%)^4
5 0.8626  =1/(1+3%)^5
6 0.8375  =1/(1+3%)^6
7 0.8131  =1/(1+3%)^7
8 0.7894  =1/(1+3%)^8
Total 7.0197  =SUM(D6:D13)

 

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