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 interest is
A) $ 122,202.
B) $ 126,360.
C) $ 127,179.
D) $ 131,850.

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 interest is
A) $ 122,202. 
B) $ 126,360. 
C) $ 127,179. 
D) $ 131,850.

Quizplus · Accepted Answer

The present value of the interest is $122,202. This is because the interest is paid at the end of each year, so the present value of the interest is the sum of the present values of each year's interest payment. The present value of each year's interest payment is calculated by multiplying the interest payment by the discount factor for that year. The discount factor is the present value of $1 received at the end of that year. The discount factor for year 1 is 1/(1+r), where r is the interest rate. The discount factor for year 2 is 1/(1+r)^2, and so on.

Use the Following Information for Questions 19-20