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Homework answers / question archive / S14A-14 (similar to) Question Help On December? 31, 2018?, when the market interest rate is 10?%, McMann Realty issues $500,000 of 7
S14A-14 (similar to) Question Help
On December? 31, 2018?, when the market interest rate is 10?%, McMann Realty issues $500,000 of 7.25?%, 10?-year bonds payable. The bonds pay interest semiannually. Determine the present value of the bonds at issuance. ?(Round all currency amounts to the nearest whole? dollar.)
Computation of Present Value of the Bonds:
Present Value of the Bonds = Present Value of Interest PVIAF (5%, 20 ) + Present value of Maturity Value PVIF (5%, 20 )
Here,
Interest = $500,000*7.25%*6/12 = $18,125
Maturity Value = $500,000
Market Interest Rate = 10%/2 = 5%
Time to Maturity = 10 Years * 2 = 20 Periods
Present Value of the Bonds = $18,125*12.4622 + $500,000*0.3769
= $225,877.6 + $188,444.7
Present Value of the Bonds = $414,322.30
