Chapter_6_Time_value_of_money_new

Chapter_6_Time_value_of_money_new - Chapter 6 Practice...

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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
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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:
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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.
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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.

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Chapter_6_Time_value_of_money_new - Chapter 6 Practice...

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