S14A-14 (similar to) Question Help On December? 31, 2018?, when the market interest rate is 10?%, McMann Realty issues $500,000 of 7

Accounting Aug 16, 2020

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.)

Expert Solution

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

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