1.
Compute the issue (sale) price on January 1, 2014 when the market (yield) rate is 5%.
1.
Answer to Problem 1CCOMP
Particulars | Amount in $ |
Present value (2) | 613,910 |
Present value of annuity (3) | 386,087 |
Issue price | 999,997 |
(Table 1)
The issue price on January 1, 2014 when market (yield) rate is 5% is $999,997.
Explanation of Solution
Present value:
Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of
Working Notes:
Calculate the amount of interest payment.
Calculate the present
Calculate the present value of annuity (interest).
2.
Compute the issue (sale) price on January 1, 2014 when the market (yield) rate is 4%.
2.
Answer to Problem 1CCOMP
Particulars | Amount in $ |
Present value (4) | 675,560 |
Present value of annuity (5) | 405,545 |
Issue price | 1,081,105 |
(Table 2)
The issue price on January 1, 20141when market (yield) rate is 4% is $1,081,105.
Explanation of Solution
Present value:
Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.
Working Notes:
Calculate the present value of bond.
Calculate the present value of annuity (interest).
3.
Compute the issue (sale) price on January 1, 2014 when the market (yield) rateis 6%.
3.
Answer to Problem 1CCOMP
Particulars | Amount in $ |
Present value (6) | 558,390 |
Present value of annuity (7) | 368,005 |
Issue price | 926,395 |
(Table 3)
The issue price on January 1, 20141when market (yield) rate is 6% is $926,395.
Explanation of Solution
Present value:
Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.
Working Notes:
Calculate the present value of bond.
Calculate the present value of annuity (interest).
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Chapter 11 Solutions
Financial Accounting, 8th Edition
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