Chapter_6_Time_value_of_money_new

# Chapter_6_Time_value_of_money_new - Chapter 6 Practice...

This preview shows pages 1–4. Sign up to view the full content.

Chapter 6 Practice Problem On January 1, 2012 Lance Co. issued five-year bonds with a face value of \$500,000 and a stated interest rate of 12% payable semiannually on July 1 and January 1. The bonds were sold to yield 10%. Present value table factors are: Present value of 1 for 5 periods at 10% .62092 Present value of 1 for 5 periods at 12% .56743 Present value of 1 for 10 periods at 5% .61391 Present value of 1 for 10 periods at 6% .55839 Present value of an ordinary annuity of 1 for 5 periods at 10% 3.79079 Present value of an ordinary annuity of 1 for 5 periods at 12% 3.60478 Present value of an ordinary annuity of 1 for 10 periods at 5% 7.72173 Present value of an ordinary annuity of 1 for 10 periods at 6% 7.36009 Calculate the issue price of the bonds. Solution Present value of \$500,000 discounted for 10 periods at 5% (\$500,000 × .61391) = \$306,955 Present value of \$30,000 for 10 periods at 5% (\$30,000 × 7.72173) = 231,652 Issue price of the bonds \$538,607

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
EXERCISE 6-13 (15–20 minutes) Time diagram: Messier, Inc. PV = ? i = 5% PV – OA = ? Principal \$3,000,000 interest \$165,000 \$165,000 \$165,000 \$165,000 \$165,000 \$165,000 0 1 2 3 28 29 30 n = 30 Formula for the interest payments: PV – OA = R (PVF – OA n, i ) PV – OA = \$165,000 (PVF – OA 30, 5% ) PV – OA = \$165,000 (15.37245) PV – OA = \$2,536,454 Formula for the principal:
PV = FV (PVF n, i ) PV = \$3,000,000 (PVF 30, 5% ) PV = \$3,000,000 (0.23138) PV = \$694,140 The selling price of the bonds = \$2,536,454 + \$694,140 = \$3,230,594.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/29/2011 for the course ACCT 302 taught by Professor Staff during the Spring '11 term at S.F. State.

### Page1 / 16

Chapter_6_Time_value_of_money_new - Chapter 6 Practice...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online