question archive Genie Corporation is issuing $230,000 of 9%, 5-year bonds when potential bond investors want a return of 8%
Genie Corporation is issuing $230,000 of 9%, 5-year bonds when potential bond investors want a return of 8%
Subject:AccountingPrice:2.87 Bought7
Genie Corporation is issuing $230,000 of 9%, 5-year bonds when potential bond investors want a return of 8%. Interest is payable semiannually. Instructions Compute the market price (present value) of the bonds. Important: round to the nearest penny in the middle of the problem. Round to the nearest dollar for your answer. If your answer is within $20 of one of the choices, please select that answer.
a. $254,070
b. $230,000
c. $230,022
d. $239,350
e. none of the above
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Ans D
that the present value of a bond consisted of:
- The present value of a bond's interest payments, PLUS
- The present value of a bond's maturity amount.
The present value of the bond is $155480 + $83948 = $2,39,428.
PV of 1=FV* PV of 1 factor
PV of 1=$2,30,000* PV of 1 factor for n 10 semi annual period,i=4% mark intt rate per semi annual period
Pv of 2,30,000* .676
PV of 1 =$=1,55,480
PVOA=PMT* PVOA factor
=10350*8.111=83940
For calculating interest PV table
| n | 1% | 2% | 3% |
4% |
| 10 | 9.471 | 8.983 | 8.530 | 8.111 |
Table for calculating PV of bonds
| n | 1% | 2% | 3% | 4% |
| 10 | 0.905 | 0.820 | 0.744 | 0.676 |
