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Compounding Frequency and Present Values

A. Table Factor X, Future Value $X

Present Value Rate Time Compounding Frequency Table Factor Future Value
a. $5,000 12% 2 yrs Annual
b. $5,000 12% 2 yrs Semiannual
c. $5,000 12% 2 yrs. Quarterly
d. $5,000 12% 2 yrs Monthly

Please show Calculations.

2. For each of the following independent situations, determine (1) whether the bonds sold at face value, a premium, or at a discount, and (2) whether interest expense recognized each year for the bonds was less than, equal to, or greater than the amount of interest paid on the bonds.

a. Bonds with a stated rate of 10% were sold to yield an effective rate of 8%.
b. Bonds with a stated rate of 7% were sold to yield an effective rate of 7%.
c. Bonds with a stated rate of 6% were sold to yield an effective rate of 11%.

Please show calculations.

3. Rocky Road Company sold $5 million of six-year sox percent debentures (bonds) on January 1, 2009. The bonds sold to yield an effective rate of 7%. Interest is paid annually on December 31st.

a. What is the price of the bonds?
b. What would be the price of the bonds if they were sold to yield a real rate of 5%?

Solution Summary

The expert examines compounding frequency and present values.

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