Use the following information for questions 19-20.
On January 1, 2020, Cotton Corp. issued eight-year, 3% bonds with a face value of $ 600,000, with interest payable semi-annually on June 30 and December 31. The bonds were sold to yield 4%. Table values are:
-The present value of the principal is
A) $ 436,800.
B) $ 438,600.
C) $ 472,800.
D) $ 473,400.

Question

Use the following information for questions 19-20.
On January 1, 2020, Cotton Corp. issued eight-year, 3% bonds with a face value of $ 600,000, with interest payable semi-annually on June 30 and December 31. The bonds were sold to yield 4%. Table values are: 
-The present value of the principal is
A) $ 436,800. 
B) $ 438,600. 
C) $ 472,800. 
D) $ 473,400.

Quizplus · Accepted Answer

To calculate the present value of the principal, we need to use the present value formula: 
PV = FV / (1 + r)^n 
Where PV is the present value, FV is the future value (in this case, the face value of the bond), r is the interest rate per period, and n is the number of periods. 
For this bond, the face value is $600,000, the interest rate is 3%, and the bond has 16 semi-annual periods (8 years x 2 semi-annual periods per year). The semi-annual interest rate is 2% (4% / 2), and the number of semi-annual periods is 16. Using the formula: 
PV = $600,000 / (1 + 0.02)^16
PV = $436,800 
Therefore, the answer is A) $436,800.

Use the Following Information for Questions 19-20