Compute the present value of a debenture. The principal amount is $50 000, the stated rate is 3%, and the term of the debenture is 6 years. The debenture pays interest half- yearly. At the time of issue, the market rate is 4%. Please compute the present value of the debenture at market rate using the present value tables.
A)$47 331
B)$7 931
C)$59 000
D)$39 400

Question

Quizplus · Accepted Answer

The present value of the debenture is calculated using the present value of an annuity formula for the interest payments and the present value of a lump sum for the principal. The interest payment is $750 (3% of $50,000 divided by 2), paid semi-annually for 12 periods (6 years x 2). The market rate per period is 2% (4% annual rate divided by 2). Using present value tables, the present value of the annuity and the principal are calculated and summed to get approximately $47,331.

Compute the Present Value of a Debenture