Chenard Company is about to issue $3,000,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Chenard uses to calculate compounded interest. $$\begin{array} { | l | c | c | r | r | }
\hline & \begin{array} { c }
8 \text { periods, } \
10 \%
\end{array} & \begin{array} { c }
16 \text { periods, } \
5 \%
\end{array} & \begin{array} { c }
8 \text { periods, } \
12 \%
\end{array} & \begin{array} { c }
16 \text { periods, } \
6 \%
\end{array} \
\hline \text { Present value 1 } & 0.46651 & 0.45811 & 0.40388 & 0.39365 \
\hline \text { Future value 1 } & 2.14359 & 2.18287 & 2.47596 & 2.54035 \
\hline \text { Present value of an annuity of 1 } & 5.33493 & 10.83777 & 4.96764 & 10.10590 \
\hline \text { Future value of an annuity of 1 } & 11.43589 & 23.65749 & 12.29969 & 25.67253 \
\hline
\end{array}$$ To the closest dollar, how much can Chenard expect to receive for the sale of these bonds?
A) $3,193,390
B) $2,293,710
C) $3,325,130
D) $5,400,000

Question

Chenard Company is about to issue $3,000,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Chenard uses to calculate compounded interest. $$\begin{array} { | l | c | c | r | r | } 
\hline & \begin{array} { c } 
8 \text { periods, } \
10 \%
\end{array} & \begin{array} { c } 
16 \text { periods, } \
5 \%
\end{array} & \begin{array} { c } 
8 \text { periods, } \
12 \%
\end{array} & \begin{array} { c } 
16 \text { periods, } \
6 \%
\end{array} \
\hline \text { Present value 1 } & 0.46651 & 0.45811 & 0.40388 & 0.39365 \
\hline \text { Future value 1 } & 2.14359 & 2.18287 & 2.47596 & 2.54035 \
\hline \text { Present value of an annuity of 1 } & 5.33493 & 10.83777 & 4.96764 & 10.10590 \
\hline \text { Future value of an annuity of 1 } & 11.43589 & 23.65749 & 12.29969 & 25.67253 \
\hline
\end{array}$$ To the closest dollar, how much can Chenard expect to receive for the sale of these bonds?
A) $3,193,390
B) $2,293,710
C) $3,325,130
D) $5,400,000

Quizplus · Accepted Answer

The present value of the bond's face value and the present value of the interest payments are calculated using the discount rate of 10% (5% per period for 16 periods). The present value of the face value is $3,000,000 * 0.45811 = $1,374,330. The present value of the annuity of interest payments is $180,000 * 10.83777 = $1,950,800. The total is $1,374,330 + $1,950,800 = $3,325,130.

Chenard Company Is About to Issue $3,000,000 of 8-Year Bonds