Compute the present value of a debenture. The principal amount is $140 000, the stated rate is 9%, and the term of the debenture is 4 years. The debenture pays interest half- yearly. At the time of issue, the market rate is 8%. Please compute the present value of the debenture at market rate using the present value tables.
A)$102 340
B)$42 418
C)$142 000
D)$144 758

Question

Quizplus · Accepted Answer

The present value of the debenture is calculated by discounting the cash flows (interest payments and principal repayment) at the market rate of 8%. Since the interest is paid semi-annually, the market rate is divided by 2, and the number of periods is doubled. Using present value tables, the correct present value is $144,758.

Compute the Present Value of a Debenture