Present Value of Bonds Payable Premium Moss Co issued 900000

Present Value of Bonds Payable; Premium Moss Co. issued $900,000 of ten-year, 12% bonds with interest payable semiannually, at a market (effective) interest rate of 10%. Determine the present value of the bonds payable, using the present value tables in Exhibit 8 and Exhibit 10. Round to the nearest dollar.

Solution

Face value = 900000

n = 10 year, for semi annually = 20 semi-annual years

r = 12 %, for semi-annual = 6% = 900000 * 0.06 = 54000

Market interest rate = 10 %, for semi- annual = 5%

Present Value of Bonds payable = Face Value * Present value factor ( r%, n) + Interest * Cumulative present value factor ( r%, n terms)

= 900000 * PVF(5%,10^th year) + 54000 * (5%, 10 years)

= 900000 * 0.376889 + 54000 * 12.46221

= $ 1,012,159

*For present value Factor (PVF), refer tables in Exhibit 8 and Exhibit 10