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On January 1, 2017, Satin Corp.issued eight-year, 6% bonds with a face value of $500,000, with interest payable semi-annually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
-The present value of the interest is
A)$172,410.
B)$174,780.
C)$186,300.
D)$188,415.

Question

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On January 1, 2017, Satin Corp.issued eight-year, 6% bonds with a face value of $500,000, with interest payable semi-annually on June 30 and December 31.The bonds were sold to yield 8%.Table values are: 
-The present value of the interest is
A)$172,410. 
B)$174,780. 
C)$186,300. 
D)$188,415.

Quizplus · Accepted Answer

The present value of the interest can be calculated using the formula: 
PV = (C / r) x (1 - (1 / (1 + r)^n))
Where PV is the present value of the interest, C is the semi-annual coupon payment ($15,000 = 0.06/2 x $500,000), r is the semi-annual yield rate (0.04 = 8%/2) and n is the total number of semi-annual periods (16 = 8 x 2).
Plugging in the values in the formula, we get:
PV = ($15,000 / 0.04) x (1 - (1 / (1 + 0.04)^16))
PV = $174,780
Therefore, the present value of the interest is $174,780 which is option B.

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