Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
On December 31, 2018, when the market interest rate is 16%, McMann Realty issues $300,000 of 14.25%, 10-year bonds payable. The bonds pay interest semiannually. Determine the

Transcribed Image Text:S14A-14 (similar to)
Question Help
On December 31, 2018, when the market interest rate is 16%, McMann Realty issues $300,000 of 14.25%, 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.)
(Click the icon to view Present Value of $1 table.)
(Click the icon to view Present Value of Ordinary
Annuity of $1 table.)
(Click the icon to view Future Value of $1 table.)
(Click the icon to view Future Value of Ordinary Annuity
of $1 table.)
The present value of the bonds at issuance amounts to

Transcribed Image Text:Present Value of $1
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
12%
14%
15%
16%
0.990 0.980 0.971 0.962 0.952 | 0.943
0.980 0.961 0.943 0.925 0.907
0.971 0.942 0.915 0.889 0.864 0.840 | 0.816
0.961 0.924 0.888 0.855 0.823 | 0.792
0.951 0.906 0.863 0.822 0.784
0.917 0.909
0.842 0.826
0.772 0.751
0.708 0.683
0.650 0.621
0.870 0.862
0.769 0.756 0.743
0.712 0.675 0.658 | 0.641
0.636 0.5920.572 | 0.552
0.567 0.519 0.497 0.476
0.935
0.926
0.893
0.877
0.890
0.873
0.857
0.797
0.794
0.763
0.735
0.747 0.713
0.681
Period 6
Period 7
Period 8
Period 9
Period 10 0.905 0.820 0.744 0.676 | 0.614 0.558
0.942 0.888 0.837 0.790 0.746 | 0.705
0.933 0.871
0.923 0.853 0.789 0.731 0.677 0.627
0.914 0.837 0.766 0.703 0.645| 0.592
0.596 0.564
0.547 0.513
0.502 0.467
0.460 0.424
0.422 0.386
0.456 0.432 0.410
0.452 0.400 0.376 | 0.354
0.327 0.305
0.308 0.284 0.263
0.270 0.247 || 0.227
0.666
0.630
0.507
0.813 0.760 0.711
0.665 0.623
0.583
0.582
0.540
0.404
0.351
0.544
0.500
0.361
0.508
0.463
0.322
Period 11 0.896 0.804 | 0.722 0.650 0.585 0.527
Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444
Period 13 0.879 0.773 0.681 0.601 | 0.530 | 0.469
Period 14 0.870 0.758 | 0.661 | 0.577 0.505 0.442 | 0.388
Period 15 0.861 0.743 0.642 0.555 0.481
0.287 0.237 0.215 | 0.195
0.356 0.319 0.257 | 0.208 | 0.187 | 0.168
0.229 0.182 | 0.163 | 0.145
0.205 0.160 | 0.141 0.125
0.183 0.140 0.123 0.108
0.475
0.429 0.388 0.350
0.397
0.326 0.290
0.340 0.299 0.263
0.315 0.275 0.239
0.415
0.368
0.417 0.362
Period 16 0.853 0.728 0.623 0.534 0.458
Period 17 0.844| 0.714 0.605 0.513 0.436 0.371
Period 18 0.836 0.700 0.587 0.494 0.416 | 0.350 0.296
Period 19 0.828 0.686 0.570 0.475 0.396 0.331
Period 20 0.820 0.673 0.554 | 0.456 0.377
0.292 0.252 0.218
0.270 0.231 0.198
0.250 0.212 0.180
0.232 0.194 0.164
0.178 0.149
0.163 0.123 0.107 0.093
0.146 0.108 | 0.093 | 0.080
0.130 0.0950.081 | 0.069
0.083 0.070 0.060
0.394
0.339
0.317
0.277
0.116
0.312 0.258
0.215
0.104
0.073 0.061
0.051
Period 21 0.811 0.660 | 0.538 0.439 0.359
Period 22 0.803 0.647 0.522 0.422 0.342 0.278
Period 23 0.795| 0.634 | 0.507 0.406 0.326 | 0.262
Period 24 0.788 0.622 0.492 0.390 0.310
Period 25 0.780| 0.610 | 0.478 | 0.375 | 0.295
0.199 0.164 0.135
0.184 0.150 0.123
0.170 0.138 0.112
0.158 0.126 0.102
0.116 0.092
0.093 0.064 0.053 0.044
0.056 0.046 0.038
0.074 0.049 0.040 | 0.033
0.066 0.043 | 0.035 0.028
0.038 0.030 | 0.024
0.294
0.242
0.226
0.083
0.211
0.247 | 0.197
0.233
0.184
0.146
0.059
Expert Solution

Step 1
Bond valuation is the process of finding the fair value of the bond. It means to find the present value of a stream of cash flows that it generates. The discounting factor determines the present value of the bond. It can be calculated as follows:
Where,
C = Periodic coupon payments
F = Face value of the bond
Step by step
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