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USING EXCEL PV FORMULA Problem: On January 1, 2016, the Auto-Stop Corporation issued bonds in the...

USING EXCEL PV FORMULA Problem: On January 1, 2016, the Auto-Stop Corporation issued bonds in the amount of $10,000 that will be paid in three years. Interest of $400 is payable semiannually each January 1 and July 1 with the first interest payment at the end of the period, on July 1 of the current year. Draw a time line of the bond’s cash outflows. If the market rate of interest is 10%, what is the amount of the bond issue proceeds (cash received) when Auto-Stop Corporation issued the bonds?

(1) PV of Single Sum

(2) PV of Ordinary Annuity
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Answer #1

TIME LINE FOR CASH OUTFLOWS

0 0.5 1.0 1.5 2.0 2.5 3.0          

|______|_______|_______|_______|_______|_______|

-$400 -$400 -$400 -$400 -$400 -$10,400      

[1]

PV of single sum = 10000/1..05^6 =

$        877.91

[2]

PV of ordinary annuity = 400*(1.05^6-1)/(0.05*1.05^6) =

$     2,030.28

Total bond issue proceeds (Cash received)

$     2,908.19

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