Roehm Co. issued $30,000,000 of four-year, 10% bonds, with interest payable semiannually, at a market (effective) interest rate

Roehm Co. issued $30,000,000 of four-year, 10% bonds, with interest payable semiannually, at a market (effective) interest rate of 8%. Determine the present value of the bonds payable, using the present value tables in Exhibits 4 and 5. Round to the nearest dollar.


Answer:

Present value of $1 for 8 semiannual
periods at 4.0% semiannual rate…………………………… 0.73069
Face amount of bonds…………………………………………
Present value of an annuity of $1
× $30,000,000 $21,920,700
for 8 semiannual periods at 4.0% semiannual rate……… 6.73274
Semiannual interest payment………………………………… × $ 1,500,000* 10,099,110
Total present value (proceeds)……………………………… $32,019,810
* $30,000,000 × 5%