I have this problem for an accounting class.
Fact Pattern: 10-Year Bond semi-annual 12% Coupon bond$1,000,000 par Value
Principal :1,000,000
Interest: $120,000 per year BUT $60,000 per semi-annual period.
What is the present value of these cash flow(s)
1. The present value of the single sum(Principal) 6% for 20 payments =.3118 .3118 x 1,000,000= 311,800
2. present value of the annuity (interest payment) 6% for 20 payments =11.4699
11.4699 x $60,000 = 688,194
I understand how question 2 was solved. (1-(1.06)^-20)/.06 =11.4699 but i cannot for the life of me figure out how they came about getting .3118 for the first problem. could someone please explain?
also this is another problem that i need help with.
20-Year Bond semi-annual interest 10% contract rate 5,000,000 face value where the market rate is 6%,10%,14%
1. Determine the issuance price of the bonds at the date of the sale?
the example my Professor gave is :
"This is the cruz of the problem. I am using the market at 6%"
First determine the present value of the single payment of 5,000,000
.307 X 5,000,000 =1,535,000.
How did he obtain .307?
Thanks for the help
